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QE, Its Shit or Bust Now

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If you are wondering when Central Banker or politicians will ever end QE, think again. Since Bernanke said on 22 May that the Fed may taper back QE. Within a few weeks over $2.5 trillion has being wiped from the value of equities across the globe. Despite what has been said about trying to get a recovery going, the stock markets will be kept propped up as long as the global ponzi debt scheme can be fed because the alternative to them is unthinkable. Unfortunately for the rest of us the alternative will one day become a reality and that’s a mathematical certainty. All fiat currencies end in disaster and this time is no different.

printingThe Federal Open Market Committee meets next week after the Bank of Japan this week left its lending program unchanged. Global stocks have plunged 5.2 percent from their May 21 peak this year on speculation the Fed may ease stimulus.

“People are still trying to assess the prospects, likelihood, and timing of tapering from the Federal Reserve,” Chris Green, an Auckland-based strategist at First NZ Capital Ltd., a brokerage and wealth management firm, said. “Markets want stability in the economy but they also want unlimited stimulus. The two can’t continue to exist together.”

Trillions Erased

More than $2.5 trillion has been erased from the value of global equities since Federal Reserve Chairman Ben S. Bernanke said May 22 the Fed could scale back stimulus efforts should employment show “sustainable improvement.”

………

To summarize: after three years of the most aggressive deficit spending and monetary ease in human history, the global economy is…slowing down. Meanwhile, central bankers, finally realizing that their random lever-pulling has created asset bubbles without any actual new wealth, and that the likely (very ugly) aftermath might make them unpopular in retirement, are trying to untangle the mess they’ve created.

But even hinting that they might, at some point in the distant future, consider planning to discuss a timetable for eventually gradually phasing in a slightly lower heroin dosage has sent the global financial junkie into a fit of anticipatory withdrawal. Like any good enabler, the bankers will of course respond that they were misquoted and that easy money is now a permanent feature of the modern world. So relax, everything’s going to be okay. Go back to your derivatives trading, and have a little more leverage on us.

Now, there’s no way to know if this is that time, but a time is coming when things are so complex and the moving parts are moving so quickly and erratically that no policy response will make a difference. When that time finally comes it will look a lot like tonight’s Asian markets.

Source: Dollar Collapse

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Peter Schiff: This Is Going To End Badly Much Worse Than 2008

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Peter Schiff counters the MSM cheerleading for Bernanke and irresponsible money printing. The end is on the horizon and will be much worse than 2008.

JHK: Cattle Drive From Bonds To Stocks

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Recently Bill Gross warned of the “credit Supernova” whereby we could see a looming explosion that could see investors lost in space. James Howard Kunstler laughs at the Fed’s money printing which will ultimately cause huge damage to the bond market as investors move towards stocks in their droves.

 How hilarious is the Federal Reserve’s cattle drive of cash money (i.e. “liquidity”) into the stock markets? I’ll tell you: if that cash is outflow from bonds that pay ZIRP interest rates, then this attempt to stampede investment into the stock market is only going to succeed in ravaging the bond market and by extension the credibility of the dollar, the US banking cartel, and then the world financial system as a whole. 

If bond-dumpers rush into stocks, then who are the next bond buyers at ZIRP? The USA can’t keep going without continuous bond selling. Somebody has to buy the darn things. The Federal Reserve is now buying around 70 percent of US issue — a lot of it via secondary market pass-thru shenanigans involving “Primary dealers” (a.k.a. Too Big To Fail banks, who get to cream off a premium when they flip bonds to the Fed — tidy little racket). If the other 30 percent of issue can’t find willing buyers at ZIRP then interest rates will have to go up. If interest rates go up, then interest paid out on bonds (that is “debt service”) by the US government will go up catastrophically, because the aggregate debt is so colossal and most of the debt is short term, meaning that in a post-ZIRP world the interest rate ratchets up automatically every 13 weeks as bonds roll over. The US will then only be able to pretend that it can service the debt at higher interest rates. Everybody in the world will recognize this — surely only increasing the velocity of the stampede away from bonds. The question is: how long can pretending to service debt go on before it is just called by it’s real name: default? Or, if countered with additional furious computer “money” creation: hyperinflation? Either way, of course, you end up broke.

Deliberate intention to pretend all is well.

This cattle drive into stocks is strictly a political gambit. The cattle are being driven to the slaughterhouse. It’s discretionary strategic national financial suicide. They’re driving up the stock markets for cosmetic purposes, to make it appear that an economic recovery is going on, and with the aim of setting in motion a self-reinforcing financial feeding frenzy in this rush to “equities.” By the way, in case my manner seems didactic today I am attempting to define my terms as I go along because most other financial bloggers seem to assume that ordinary people understand all their jargon, which I am quite sure they do not.

   Returning to my point… the Fed and their auditors on Wall Street and in government, are jacking up the stock markets in the hopes of stirring up “animal spirits,” as the financial psychologists say, to put over the story that it equals a vibrant economy — which is nonsense, of course, to anyone who shoots a casual glance at the economic wreckage all around them. Anyway, since the stock market action these days is dominated by high frequency trading robots running on algorithms, where exactly would animal spirits even factor in? If anything the absence of real animal spirits in this action also implies the absence of its counterpart, animal survival instinct, of which human intelligence is an order. What can come of stirring up animal spirits among robots? A train wreck is exactly what.

 Now, I ask you: at a moment in history when vast interlinked global financial markets have never been so unstable, so primed for unintended consequences courtesy of the diminishing returns of technology, so ripe for a massive, cascading “accident,” is it a prudent thing to fuck around with such crude PsyOps?

Gross isn’t quite as specific as Kunstler but does warn of the credit bubble running out of energy.

Pimco’s Bill Gross looks at the investing universe and sees a dangerous supernova – a looming explosion that could see investors lost in space.

The head of the Pacific Investment Management bond giant has issued an ominous forecast in which he worries that the global central bank-induced credit bubble “is running out of energy and time.” (Read More: Federal Reserve Should Do Less, Not More: Morici)

As a result, investors will have to get used to an atmosphere of diminishing returns and portfolios that will hold more hard assets like commodities and fewer less-tangible financial assets like stocks.

“Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic,” Gross said in his February newsletter.

Gross recommends gold, commodities and other currencies.

“When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets,” he added.

Gross advocates investors turn to gold and other commodities for inflation protection and currencies and assets in other countries that don’t have such active central banks and huge debt loads. He favors Australia, Brazil, Canada and Mexico.

All this money printing but where is the growth?

In the U.S. alone, the Federal Reserve has created a shade under $3 trillion in new money to buy more than $1.7 trillion in Treasurys and $968 billion in mortgage-backed securities, according to the most recent Fed balance sheet. The Fed will be buying $85 billion a month of the two debt instruments as it seeks to continue stimulating the slow-growth economy, which actually contracted 0.1 percent in the fourth quarter.

The inability of central banks to generate robust growth despite all the money-printing has stoked concern about future returns by Gross and Pimco, which manages $1.92 trillion for clients.

“Unless central banks and credit extending private banks can generate real or at second best, nominal growth with their trillions of dollars, euros, and yen, then the risk of credit market entropy will increase,” Gross said.

His “credit supernova” metaphor describes a condition in which “our current monetary system seems to require perpetual expansion to maintain its existence” similar to the physical universe.

That expansion to $56 trillion, though, has generated consistently lower results, he said. Consequently, the investor base needed for the expansion to continue may not last.

“The end of the global monetary system is not nigh. But the entropic characterization is most illustrative,” Gross said. “Appreciate the supernova characterization of our current credit system. At some point it will transition to something else.”

Source: 24hGold.com,  CNBC

Marc Faber Sees 1987 Style Crash Ahead

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Marc Faber gave an excellent interview on Bloomberg regarding Europe, US, QE3, stock markets and state of global financial economy. Source of article is from ZeroHedge, but video of interview can be see on Bloomberg.

Faber reflects on the US (slowing of revenue growth and the real linkages to European stress) noting that unless we get a huge QE3, there will be “a crash, like in 1987 noting he believes we have seen the highs for the year; on the likelihood of QE3 (agreeing with us that the Fed won’t act unless asset markets plunge first); on Greece’s exit of the Euro and whether policy-makers can manage the exit properly “bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone“; on the difference between investment markets and economic reality (thanks to financial repression); and on the global race-to-debase “I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries“.

On whether the Fed will issue QE3:

I think that QE3 will come, but it depends on asset markets. If the S&P dropped  here another 100-150 points, I think that QE3 will occur.  But if the S&P bounces back and we are above 1400, I think the Fed will essentially be waiting to see how the economy develops. The economy in the U.S. consists of different economies, some of it is very strong. I was in southern California and there the economy is doing fine. In other places, it is not doing fine. It is not universally bad. Compared to other countries, it is actually doing relatively well.”

On whether Greece will exit the euro:

 “There is a very good chance they will exit the euro and it would have been desirable if the euro countries had kicked out Greece three years ago. It would have saved a lot of agony. As a result of the bailout, the problem has become bigger and bigger and bigger”.

On whether policymakers can manage the exit properly:

“I think it would be much better for Greece and the entire euro area if Greece were kicked out. Spain kicked out. Italy out and even France should be out. At the end you just have Germany with the euro. The other countries can have their own currencies and still trade and use the euro as an international currency.”

 “The bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone and that the countries would go back to their own currencies and still use the euro as an international currency the way you travel through Latin America and with a dollar you can pay anywhere you with. In my view, that would be the best. These countries that have financial difficulties, you will have to write off their debts and make it difficult for them to access the capital market in the future. Just to keep bailing them out will increase the problem. It will not solve the problem.”

On how economic catastrophe can be avoided if the euro is dissolved:

“Explain to me why there would be an economic catastrophe. Many countries have pegged currencies have given up the peg to another currency and it was not a catastrophe. The public has been brainwashed that the breakup of the euro would be a complete disaster when in fact, it may be the solution.

On whether there will be a race to the bottom among various countries to devalue their own currencies if the euro is dissolved:

 “I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries and they want to maintain their power. They always talk about austerity being bad but if you look at the government expenditures of the EU, in 2000, it was 44% of GDP. Since then, it has grown by 76% under the influence of the Keynesian clowns and now it is 49% of GDP. That is the problem of Europe — too much government spending and lack of fiscal discipline.”

On whether it’s a mistake to short the euro:

“I want to make this very clear — the investment markets may move in different directions than the economic reality because if you print money. That’s why in the Bloomberg poll, Mr. Bernanke is viewed so favorably because fund managers and analysts and strategists, they are only interested in having stocks up so their earnings increase and their bonus pool increases. But in reality, the economy can go downhill and stocks can go up just because of money printing and in Europe, the ECB has proven now that they are very good money printers.”

On where to invest in Europe:

“Actually, usually when socialists come in or there is a crisis such as we have in Greece, it occurs usually near market lows. If someone really wanted to take speculative positions, he should look at quality non- financial stocks in countries like Spain, Italy, France, and Greece. I think rebound is coming. The market on a short-term basis is oversold. But if you look at the market action — first of all, we made a low on the S&P last October at 1074. We went to 1422. The market is down from 1422 to less than 1360. The whole world is screaming we’re in a bear market. This is a minor correction. I think it may become a more serious correction as the technical picture of the market has deteriorated very badly and as the S&P made a new high this year on April 2nd, all the European markets are lower than they were a year ago.”

Faber on whether he still thinks that profit margins will shrink and record profits seen will be no more for U.S. corporations:

 “Yes, if you look at the statements by corporations, it is very clear. Earlier on, you had a commentator who said the exports to Europe from the U.S. are irrelevant. I agree with that. What is relevant are the businesses of American corporations in Europe and the earnings they derive from these businesses. That is definitely slowing down. The revenue growth is slowing down and, in my view, you will have more and more corporations that report earnings that are actually good but they do not exceed expectations…The bottom line is I think the market will have difficulty moving up strongly on less we have a massive QE3 and if it moves here and makes the high above 1422, the second half of the year could witness a crash.”

“A crash, like in 1987…because the market would become technically very weak. I would expect the market making a new high. If it happens, it would be a new high with very few stocks pushing up and the majority of stocks have already rolled over. The earnings outlook is not particularly good because most economies in the world are slowing down. People focus on Greece but Greece is completely irrelevant. What is relevant are two countries — China and India — 2.5 billion people combined. They are a huge market for goods and these economies are slowing down massively at the present time”

Video source: Bloomberg

Insider Selling Increasing

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Sometime a chart tells a story better than words. The following shows company insider selling over the last number of years.

All Stocks And Bonds Are Owned By The Federal Reserve (through DTCC), Not By You

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If MF Global is anything to go by and the shit was to hit the fan, then how safe do you think your stocks and bonds are? A little known fact is the Fed owns them through a body called the DTCC (Depository Trust and Clearing Corporation ). You simply are the beneficiary of them and not the owner.

This is one of those mind blowing pieces of information that shows there is nothing that is not owned by the Federal Reserve.  A little known company – Depository Trust and Clearing Corporation – DTCC is the one entity/corporation in the world that holds all stocks and bonds traded for brokers.  They handle every stock/bond transaction world wide.  Not just that, but every stock/bond that people think they own, they are not the owners of them.  The stocks and bonds are not in their names in fact, the broker puts them in a fictitious name which the DTCC owns.   The DTCC is listed as the actual owner of the stock and bond and those who have purchased them are strictly the beneficiary of said stocks and bonds.

You may be thinking… well being beneficiary is just as good as being the stated owner…. WRONG!
Being beneficiary of the stocks and bonds purchased may be fine when all things are going well, but what happens when things start going nuts and banks have some real problems (ie: Greece default and banks exposure to it, via derivatives)?

Do you understand how Wall Street is protected over all customers by what has happened with MF Global?

How could that have happened, how could such obvious injustice have been done on every level?  How come not one single level of government from Congressional, Judicial and Administrative will not hold a Wall Street Commodities broker accountable to stealing the customers money out of their personal accounts?  How come not one single regulatory committee (CFTC) or government entity (FBI, DHS, etc) are not making MF Global accountable for theft directly out of people’s personal accounts?

Well, once you read the information below, you will understand why MF Global is able to get away with it.  I now understand it.  Because all the commodity contracts and gold and silver people thought they owned, they did not.  They were strictly beneficiaries of it as long as the government/Fed Reserve allowed them to be.  But once it came down to MF Global falling apart the “real” owners kept all monies and gold and silver.

It all makes sense to me now and all the pieces of the puzzle have come together in why a broker is able to steal people’s money out of their accounts.

And further reading

The banks and brokers are merely custodians for their clients. By federal law (SEC), they cannot hold any assets in the customer’s name. The assets must be held in the name of DTC’s holding company, CEDE & Co. That’s how DTC has more than $19 trillion dollars of assets in trust… or is it really in “trust” if the private Federal Reserve System is technically holding it in their “unknown” entity’s name? Obviously, if stock and bond certificates you’ve purchased aren’t in your name, then the “holder” (the Federal Reserve System) could theoretically refuse to surrender them back to you under a “national emergency” according to the Trading with the Enemy Act (as amended). Is this the collateral being held by the private Federal Reserve System to pay off the national debt owed to them by our federal government, first initiated by Lincoln’s debt bonds of 1864?

Simply put, the Depository Trust Company absolutely controls every paper asset transaction in the United States as well as the majority of overseas transactions, and they now physically hold (as of April 1999) 99% of all stock and bond book-entrys in their street name, not the actual owner’s names. If you have stock or bond certificates in your name buried in your back yard or under your mattress, we suggest you keep them there. If not, it might be very wise to cancel your brokerage account and power of attorney status, re-register the stocks and bonds in your name (if you still can), and keep them hidden where only you know their location. Otherwise, you have absolutely no control over them (see Part II of our exclusive research report on the DTC for more information on beneficial ownership status). However, getting a stock or bond certificate these days is not so easy if possible at all.


DTCC owned by Federal Reserve.

DTCC settled nearly US$1.66 quadrillion in securities transactions.

US Unemployment To Go To 25%

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Richard Russell editor of the “Dow Theory Letters” was interviewed on King World News about the state of the stock markets and begged his subscribers to be OUT of stocks. As the steady deterioration of the markets internals are being masked by the MSM, he reckons at some stage in the near future this will caused the DOW to buckle.

 

The aftermath of debt bubbles, when they burst, is measured, not in years, but in decades.  I’ve said before that my signal for the end of this extended top will be that time when the Dow breaks below 10,000.  Once, having violated 10,000, I expect consumers to turn dead-bearish, and I expect the currently optimistic analysts to become pessimistic.

Once again I beseech (beg) my subscribers to be OUT of stocks.  The outlook for the markets, all of it, is now very bearish.  We are watching the greatest debt bubble in history about to deflate, and it won’t be a pretty sight.

All man-made money is a liability of the creator and I am afraid that.  Man-made money is ultimately doomed.  Gold will be the last man standing as it has been over thousands of years.

At the start this site I mentioned that already 6.3 trillion dollars have been lost in this early, and I emphasize, early, stage of the bear market.  The essence of what I foresee ahead — we are now moving into the second half of one of the greatest bear markets in history.  It will not be a time for making money, rather it will be a time for austerity and survival.

As Europe has already embraced austerity, Russell expects the US to follow which will lead ultimately to high unemployment and high inflation.

Europe is already practicing austerity, and shortly I expect the US to follow in its footsteps.  One great problem is that the US’s politicians are trying to avoid pain.  Austerity means pain, and to reduce our consumption and spending means one thing – taking the pain. 

Already the early signs of pain are appearing, and of course what I’m talking about is unemployment well above the present level.  During the 1930s unemployment rose to 25%.  I think ultimately we will again see unemployment above 25% before this bear market ends.

Signs of inflation are now appearing.  Super Bowl ads for this year have already sold out at the price of 4 million per 30 seconds a piece.  Starbucks has just raised its prices.  The prices of oil, silver and gold have surged higher today — all signs of inflation.  Almost all commodities closed higher as well.

 

 

 

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