Posted on 11/12/2009 8:12:04 AM PST by PreciousLiberty
For two and a half years The Market Ticker has pointed out the foibles of The Fed and other claims of "help" for the economy - when the prescription for "help" is just an extension of the same failed policies that created the mess in the first place.
But now we are starting to see this show up in the so-called "mainstream media", with the latest being The Wall Street Journal:
It takes similar reasoning to reconcile the elation felt across America every time the stock market rises—partially replenishing personal investment portfolios and 401(k) retirement plans—with the uneasy feeling that we are being set up for yet another big financial disappointment. We dare to hope that the economy is growing solidly once more, that the Federal Reserve has superior knowledge about providing liquidity, and that the U.S. Treasury knows what it's doing by guaranteeing money market-fund assets.
But what if the Fed's efforts to stoke a recovery are merely creating asset bubbles in equities and elsewhere? What if government guarantees—explicit and implicit—are encouraging high-risk investment behavior rather than restoring conditions for normal market returns? What if excess dollars produced here are being channeled by speculators into foreign stock and bond markets as part of a currency play?
(Excerpt) Read more at market-ticker.org ...
My view is that things may be rapidly progressing to the "torches and pitchforks" stage...
Observe carefully the USD vs SP 500 chart.
So should we get our money out now and just put it into savings accounts? I already bought gold!
Need tar. Have feathers.
Gold looks like the best play for the foreseeable future. Plenty of food is a good idea too...
>> A friend passed this along to me this morning, and it seems to make a lot of sense. What do you all think?
Personally, I agree with the theory that “all that loose, cheap money” — intended to be lent to productive enterprise and thereby fuel an “honest” recovery — has instead found its way into “carry trade” speculation in equities, metals, and commodities. (Interestingly, pretty much every asset class but real estate, which I guess still has bad juju associated with it.)
I will also be the first to admit that it’s all very confusing, uncharted territory. What Denninger says could be part of the reason, most of the reason, or little of the reason. And the end game is anyone’s guess.
A time to move VERY carefully, IMO.
>> Need tar. Have feathers.
We should stock up on tar before oil prices go through the roof again. I think the demand will soar. ;-)
You can post his articles in full. I read him daily another freeper said he is a national treasure. Now here’s the part for the pitchforks!
What Judy misses (perhaps because she’s unaware of it, or perhaps because she simply doesn’t feel comfortable saying it) is that deflation destroys over-levered debtors. It forces them into bankruptcy.
When that happens to the “little people” (that is, you and I) it doesn’t matter to the oligarchs and robber barons on both Wall Street and Washington DC.
But defaults also destroy lenders who made imprudent loans. That’s unacceptable as a matter of Washington DC’s bought-and-paid-for policy, which is why we have Treasury Secretaries and the Chairman of The Fed corralling Representatives and Senators in a room and literally threatening them with the collapse of America if they don’t fork up $700 billion of taxpayer funds for an open-ended, one-page slush fund that includes absolute legal immunity for whatever might be done with it.
If this had ended at $700 billion it would have been bad, but it didn’t. No, The Fed then continued onward to announce the purchase of $1.2 trillion dollars (that’s $1,200 billion more!) of debt and securities that, according to Section 14 of The Federal Reserve Act, they are not lawfully allowed to buy. (Section 13.3, often cited as justification, only allows the making of loans - not the purchase of assets. All purchase authority rests in Section 14.)
The FDIC then stepped outside of its legal mandate as well, “deciding” to guarantee bond issuance by banks - something that has absolutely nothing to do with depositor insurance. Why? Because once again, it is unacceptable in the Washington DC establishment if those who make bad loans - on purpose - have to eat them. Only the borrower - that is, the “ordinary Joe” - is allowed to have his future destroyed. The lender, who is supposed to also lose his money when he makes a bad decision (thereby providing a strong disincentive to making bad loans) is to be protected by the taxpayer, thereby screwing the borrower twice - first by bankrupting him, then demanding that he bear the cost for the lender who made the bad lending decision as well!
Keynesian Economics and it’s offshoot (”Chicago” economic theory) is, at its core, a scam. Not because the idea is invalid, but because it dictates that during times of plenty (”booms”) the government must raise taxes and pay down debt - not just “decrease deficits.” Yet in the post-war era we have never managed to run a material surplus, not even during Clinton’s years despite the claims of his boosters - he, like all other modern administrations, cheated by “banking” FICA and Medicare deposits (which are pledged against liabilities in the future!) The boosters of Keynes refuse to discuss the fact that they’re not even following his claimed theories, but rather are playing “black sharpie marker” with the parts they don’t like.
Now here’s the scary part: Even though more than half of all American households now own equities directly or through mutual funds, an increase in equity prices does not figure into the Fed’s calculation of inflation. So while measures of core inflation (which exclude food and energy) carefully register minute gains in the price of a fixed basket of goods and services meant to reflect what a typical family buys to achieve a minimum standard of living, they ignore massive price surges in what has effectively become a widely held consumer good: stocks.
Moreover, the Fed’s inflation-targeting approach overlooks price increases for real estate and rising commodity prices. Don’t even mention gold, which has gone from $707 to $1,114 since a year ago.
Of course not.
But again, this is by design. The Fed is intentionally applying the wrong standard for the construction of the monetary base, because if it were to not it would have to recognize the asset price moves that underlay the actual economy in its economic numbers. This, in turn, would have led housing price increases to have been reflected in monetary aggregates and people would have freaked out starting in about 2004 - instantly derailing the bubble before it could get going.
As I have repeatedly argued if you get the original premise wrong everything else you do from that point forward is also wrong.
The monetary base in a credit-based monetary system is not “M0”, “M1” or “M’” (M-prime.) It is the unencumbered assets against which one is both willing and able to borrow.
Further, the definition of sound lending is not predicated on some leverage limit or wildly-distorted view such as Basel-II. It is in fact very simple: if one never lends unsecured beyond one’s capital there is never a systemic risk that can arise.
Here’s the problem with all the games once one gets down to brass tacks: you cannot screw people indefinitely and expect them to come back for more abuse. Oh sure, you can occasionally con people a second time, but since these “big interests” rely on a continued volume of business.....
As just one example, how many municipalities will buy interest-rate derivatives from one of these “big banks” after the disclosure that Jefferson County overpaid by 400% - and a good part of that overpayment went to bribes? Further, it has become clear that the municipal government didn’t understand the risks involved - and one can reasonably presume that was because those risks were intentionally hidden - probably by the bribing parties, the recipients of the bribes, or both.
There are solutions here but it is increasingly obvious that if Government doesn’t step in the market will. All I have to do is look at volume - the percentage that is represented by “high frequency computer trades” has gone sky-high since last fall, yet volume has been dropping dramatically since March.
When the market degenerates down to a handful of trading houses with high-frequency trading computers passing the same 100 shares back and forth between themselves as the remainder of the market participants have gotten tired of getting reamed on a daily basis due to the cheating and decide to take their ball and go home, how do the “big trading houses” make money?
We’re witnessing the destruction of the capital markets as the system is imploding from within as a direct and proximate consequence of willful blindness and outright fraud.
I took everything I had out in October last year and moved it over into a guaranteed fixed fund I’ve had since the 80s.....it’s been drawing about 4.5%....there is no way in cowboy hell that I’d go with stock market based retirement funding ever again. I honestly don’t understand why the market is going back up with all of the worthless paper and debt being kited now. Maybe it has something to do with volume, computer trading, collusion by brokers and heavily interested parties... all I know is that I”m out of that game forever.
>>I’d buy a CD at the local bank!!
I note that my local credit union pays >1.5% for a six-month CD. (Fully insured, not by FDIC but by the credit union equivalent.)
On the other hand, my local branch of Bank of Obama* is offering a staggering 0.7%, and they won’t negotiate the rate, even for a jumbo.
*well, actually, Bank of America. But what’s the difference anymore.
My view, and it’s only my view, is that run the market has experienced off the bottom at SP 666 is the rally of three lifetimes, an absolute GIFT. I would be getting protective here.
On the other hand, if deliberate inflation and dollar destruction is the official yet unspoken policy of the Fed or the unavoidable result of flaming, insane, out-of-control deficit spending, then the market should continue to rally because savings accts yield zero and any other investment class is probably a target of opportunity from the 0bama regime unless you are one of the banks that owns the regime.
So I am undecided. Thus, I would take some off and leave some in. I am having trouble trading and most traders I know are having very difficult trouble trading because we see that the gains in the market are directly, almost tick for tick, at the expense of a weakening dollar. Which at some subliminal level is disturbing...in other words...we are not being cold, brutal traders, only trading what we see and forget the cosequences for the country we live in. Goldman Sachs et al have no such compunctions. At the moment, the whole world (and even the kings of the US) appear to all be on the same side of that trade. These things have a tendency to expire as to their effect, then to viciously snap back against the complacent.
I think the bubble is in gold if anything.
Prices of commodities should move together if the reason for the movement is monetarily based. But gold is rising out of sync with other commodities like silver. Where it’s usually been 20x or maybe 30x the price of silver, now it’s touching on 60x silver.
That’s a hint I think that gold is overpriced and it’s time to sell it, not buy it.
CD?
Yesterday, I called my BOA “Wealth Advisor” (if there ever was an oxymoron, that’s it).
I wanted to roll my existing CD - a whopping 1.00% for 90 days - into something longer.
Here’s what they have:
90 day - .2% - this is not a typo
7 month - .7%
12 month - 1.09%
My wife & I went 90% cash earlier this week - now what do we do with that!
Should a person to pay their bills? Gold is SO confusing. Can one buy food with it? Can one pay his/her mortgage? Who is going to buy it?
Heck, the whole economy is confusing. The market should NOT be where it’s at given the other factors. Someone, somewhere is inflating it artificially, as the article states.
Here in New Mexico, we have tons of fire ant mounds - nasty little buggers...
>> I’d rather see gallows being built for the guilty.
Personally, I don’t really see any problem with you hanging them after SueRae and I have coated ‘em in tar and feathers and run ‘em out of town on the rail.
Now we just have to decide on exactly who THEY are.
I can not understand why gold will never crash. If the economy crashes and the loaf of bread increases by 200% does gold increase by 200%. I'm at a loss here and the TV is busting with ads for buying gold. I can understand the market side that gold is probably more solid compared to the investment in firms, but it is the crash of the economy scares me.
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