Guest Post: Why The Higher Education System Is Unsustainable (i.e. Doomed)

That which is unaffordable is unsustainable and will go away. The current system of higher education is profoundly unaffordable: it exists on an immoral foundation of student debt--$560 billion of which is Federal. Enormous expansions of student debt are required to keep the current system of higher education afloat. Thus, the key question: does the current higher education system exist to serve students, or does it exist to serve those employed by the system? Those with vested interests in the system will naturally answer “both,” but to answer this question fairly, we must ask if an alternative system that accredits each student could serve students more effectively than the current system of accrediting schools.

Marc Faber Warns "The Endgame Is A Total Collapse - But From A Higher Diving Board Now"

With rumors this evening of the White House calling around for support for Yellen, Marc Faber's comments today during a Bloomberg TV interview are even more prescient.  Fearing that Janet Yellen "would make Bernanke look like a hawk," Faber explains that he is not entirely surprised by today's no-taper news since he believes we are now in QE-unlimited and the people at the Fed "never worked a single-day in the business of ordinary people," adding that "they don't understand that if you print money, it benefits basically a handful of people." Following today's action, Faber is waiting to seeing if there is any follow-through but notes that "Feds have already lost control of the bond market. The question is when will it lose control of the stock market." The Fed, he warns, has boxed themselves in and "the endgame is a total collapse, but from a higher diving board."

More Warnings: "This Time Is Different"

The equity market’s reactions to monetary policy inflection points, when (or if) the Fed takes the first step to normalize monetary policy following easing in response to recession, have been reasonably similar. As Barclays' Barry Knapp notes, irrespective of the pace of policy accommodation removal – the average policy normalization-related correction during the prior six business cycles is 8.9%. While our memories of an extremely volatile September – five years ago – remain fresh, the last four have been exceptionally tame. However, while another period of fiscal uncertainty seems likely, Knapp fears there is a key difference between this September and the surprisingly low volatility Septembers in 2009-12. In those periods, the Fed was either buying assets or had pre-announced a new program; this year, it is preparing to weaken the portfolio balance effect.

63 High Government Debt Episodes And What They Tell Us About Our Options Today

Do you wonder what to make of America’s soaring government debt and what it means for the future? Or, if you already have it figured out, are you interested in research that might challenge your position? Either way, you might like to see the results of this exercise:

1... Take each historic instance of government borrowing rising above America’s current debt of 105% of GDP.
2... Eliminate those instances in which creditors received a lower return than originally promised, due to defaults, bond conversions, service moratoriums and/or debt cancellations.
3... Of the remaining instances, consider whether and how the debt-to-GDP ratio was reduced.

In other words, let’s see what history tells us about today’s debt levels and what comes next. You may find the answer surprising.

Goldman Flip-Flops: Sees Near-Term Upside In Gold

It was only Monday that Goldman's Damien Couravlin was pounding the table and gold right under it. A quick, and historic, $70 move higher in gold in one day following Bernanke's most recent confirmation he really has no clue what he is doing in terms of monetary policy (if knowing quite well what he is doing for the S&P and its 1950 year end price target), was all that it took for Goldman to flip flop and now suggest that there is "risk to gold prices as skewed to the upside in the near-term, in our view."

Near-Record Treasury Shorts Pummeled By Bernanke Announcement

Whether it was momentum traders doing what they do best, or just a market expecting Bernanke's "communication strategy" to pan out as expected, and follow through with more easing in demand for duration assets, is unclear and largely irrelevant, but as the following chart by JPM shows, net spec positions in UST futures are at their most short since May 2010 and are close to two standard deviations below their average since 2006. The chart shows a duration weighted composite of the net spec positions on the 10YR, 5YR, 2YR, the T-bond, the Ultra long bond and the Eurodollar futures - it is these specs that goes hurt the most by today's FOMC announcement. The question now is: will the scramble to cover shorts lead to a fresh push lower in yields (ending any talk of a rotation, great or otherwise), or following today's shock and awe move in the curve, will the move wider in rates continue.

Guest Post: Is The Fed Ready To Cut America’s Fiat Life Support?

It is undeniable that America is thoroughly addicted to fiat stimulus. Every aspect of our economy, from stocks, to bonds, to banks, and by indirect extension main street, is now utterly dependent on the continued 24/7 currency creation bonanza. The stock market no longer rallies to the tune of increased retail sales, growing export markets or improved employment expectations.  In fact, “good” economic news today is met with panic and market sell-offs! Why? Because investors and banks still playing equities understand full well that any sign of fiscal improvement might mean the end of the private Federal Reserve’s QE pajama party. They know that without the Fed’s opiate-laced lifeline, the economy dies a fast and painful death. All mainstream economic news currently revolves around the Fed, as pundits clamor to divine whether the latest signals mean the free money will flow, trickle, or dry up. At the edge of the Federal Reserve’s 100th anniversary, it is vital that we see the current developments for what they really are – history changing, in a fashion so violent they are apt to scar America forever.

Summarizing Today's Epic Moves

13th 'up' day of last 15 for the S&P...  Quite a day (considering Bernanke said they "were avoiding sharp shocks"):

Gold's best day since January 2009
5Y Treasury's biggest yield drop since March 2009
USD's 3rd worst day in a year
Homebuilders biggest rise since June 2012
New all-time highs for Dow and S&P

Two things of note aside from this chaos - shorts were being pressed into the meeting (and were smashed higher on the news); and VIX, which had been bid going in, is diverging after the press conference from equity exuberance. Some of the exuberance faded in the last 30 minutes but significant gains are holding.

As Bernanke Blows A Bigger Bubble, Everything Is Bought

"We have got to turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place, we have got to build a housing system that’s durable and fair and rewards responsibility for generations to come.  That is what we have got to do."

- Barack Obama, August 6, 2013

Goldman Analyzes The Fed's "Unexpected" Decision

BOTTOM LINE: The FOMC unexpectedly decided not to taper the rate of its asset purchases at today's meeting, preferring to wait for further confirmation of improvement in the outlook. There was no change to the forward guidance on the federal funds rate. The Summary of Economic Projections showed a decline in the central tendency expectation for the year-end 2015 fed funds rate, and the 2016 rate suggested a cautious pace of rate hikes once they begin.

Bernanke's S&P500 Year End Price Target: 1,950

With the Taper now off the table, and with the next earliest probable discussion of a Taper at the December FOMC meeting if then even, Bernanke - who may now stay have no choice but to stay for a third term - has decided to reflate the bubble to end all bubbles, along the lines of what we speculated may be the case in "Bernanke's Helicopter Is Warming Up", it is worth refreshing what Bernanke Asset Management's year end stock market target is. As a reminder, back in April we highlighted that in a world of central planning the only relevant thing to risk assets is the size of the Fed's balance sheet, and since there will be no change in the rate of ascent, we can once again repost what we showed nearly 6 months ago as to where the Fed believes the fair value of the S&P500 should be. The answer: 1,950 or bust.

The Machines Win: Within Milliseconds, The Move Was Over

We hope everyone is enjpying the spoils of war from reading the FOMC statement and buying appropriately. Of course, as Nanex shows, unless your trigger finger hit that big green button within a millisecond or so, you missed the entire move...

Who Leaked The FOMC Statement To Gold Traders?

Beginning 3 minutes before the release of the FOMC Statement, gold spot and futures prices began to rise notably. Bonds did not. Stocks did not. FX did not. Around 4300 contracts changed hands in the Dec Futures - massively more than average volume - before the statement came out and drove prices further up. In those 3 minutes Gold prices jumped $11... so the question is - lucky guess... or which big bullion bank got the nod?

Ben Bernanke Press Conference - Live Webcast

For now, markets are holding on to gains (in bonds, stocks, and gold) as we prepare for Ben to explain just how bad things are... and answer the tough questions about the growth slowdown in 2016... Of Course, that doesn't matter:


Seems like moar of the same is here to stay in the Yellen Fed but now we know that QE is not helping the real economy - how will they 'communicate' its effectiveness? We suppose that, for now, Stein's warning of 'froth' is just for the academics...


FOMC Statement Market Reaction

There is a modest rebound from knee-jerk levels but in general everything is moving how one would expect since the Fed chickened out... The USD is collapsing, Gold and stocks soaring, and 10Y yields tumbling... VIX and Bond vol has also collapsed. Let's just wait for Ben to bugger it all up with his communications...

Post-FOMC Reaction: S&P +17pts, 10Y -10bps, MTG spread unch, USD -0.65%, WTI +0.5%, Gold +$37


FOMC Shocker: No Taper - Full FOMC Statement Redline Comparison

It seems the Fed is so scared about something (despite every long-only asset manager telling us day after day that the economy is recovering and the US doesn't need crisis support... oh and can withstand higher rates) that they have gone against consensus and decided that Tapering now is premature:


Pre-FOMC: S&P Futs 1696, VIX , 10Y 2.865%, MTG Spread 72.5bps, USD 81.00, WTI $107.00, Gold $1310

We await Cramer and Liesman to explain what to do next...

What Happened At The Last Big Fed Announcement

Judging by the market's reaction to the June FOMC statement and press-conference, Nanex shows the four things that US market participants can expect to happen over the next few hours:

  1. The HFT Machines Will Take Over (fake quotes will soar)
  2. Quote Spreads will Widen (but all that liquidity provision?)
  3. Quote Spreads will Become Unstable
  4. The Number of Stocks Locked (Bid=Ask) or crossed (Bid>Ask) Will Soar

But apart from that - do as you're told and BTFATH as every commission-taking muppet will tell you the Taper is priced in.