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The Biggest Lie in Finance Today

Phoenix Capital Research's picture




 

So it’s all
about stocks?

 

Our esteemed
Fed Chairman, now claims that QE has helped by raising stock prices. That was
never a reason he listed for launching QE before. In fact, this is the first time
he’s even mentioned this as a benefit (though everyone with a thinking brain
knows that the Fed doesn’t give a hoot for anyone other than Wall Street which
is why ALL of its moves were intended to help them juice the markets).

 

Why is he
suddenly saying this?

 

It’s simple,
because the market has proved he’s either incompetent or a liar (likely both)
when it comes to QE. After all, he repeatedly said the reason we needed it was
to boost employment and lower interest rates.

 

Well, 7.3
million people have lost their jobs since the Bear Stearns collapse. The Fed
claims that this number would have been a lot worse without QE. It’s a pretty
brilliant argument considering that there is no alternate universe where the
Fed didn’t employ QE to compare to,
so there is literally no evidence that refutes the Fed’s claim.

 

However, the
fact remains that we spent over $2 trillion and still lost 7.3 million jobs.
Hard to see the success rate of that policy. And given that the only folks
hiring and raising salaries and bonuses right now are Wall Street firms, it’s
pretty clear which demographic QE has TRUTHFULLY benefitted from an economic
perspective.

 

As for QE
keeping interest rates low, like I said, Bernanke is either incompetent or a
liar. Given the abysmal performance QE has had in containing interest rates,
I’d say it’s both:

 

 

As you can
see, interest rates have soared BOTH times the Fed implemented a new QE
program. On top of this, we now have direct evidence that the Fed’s policies
are

actually killing people... literally.

 

In case
you’ve missed it, food riots are spreading throughout the developing world
Already Tunisia, Algeria, Oman, and even Laos are experiencing riots and
protests due to soaring food prices. 

 

As Abdolreza
Abbassian, chief economist at the UN’s Food and Agriculture Organization (FAO),
put it, “We are entering a danger
territory.”

 

Indeed,
these situations left people literally starving… AND dead from the riots.

 

And why is
this happening?

 

A perfect
storm of increased demand, bad harvests from key exporters (Argentina, Russia,
Australia and Canada, but most of all, the Fed’s money pumping. If you don’t
believe me, have a look at the below chart:

 

 

As you can
see, it wasn’t until the Fed announced its QE lite program that agricultural
commodities exploded above long-term resistance. And in case there was any
doubt, QE 2 sent them absolutely stratospheric.

 

In light of
all of this, it’s no surprise that Bernanke is now fishing for any
justification for his insane policies. However, even his claim that QE has
pushed stocks higher is a big fat lie as MOST of stocks’ gains have been a
direct result of inflation or decreased purchasing power.

 

Indeed, in
nominal terms, stocks have rallied 91% since their March 2009 low. However,
when you account for Dollar devaluation by pricing stocks in Gold, you  find that nearly two thirds of stocks’
gains have come as a result of the US Dollar lowing purchasing power. Put
another way, stocks have only rallied 31% since their March 2009 in REAL terms.

 

 

And it looks
as though stocks are about to drop even MORE in real terms.

 

 

As you can
see, stocks have outperformed Gold since December. However, priced in Gold
they’ve recently been rejected at long-term resistance. to 0.925 if not 0.90
(meaning Gold would greatly outperform stocks on a relative basis).

 

Indeed,
while I think stocks are more than overdue for a correction, I view the latest
pullbacks in Gold (and Silver) as MAJOR buying opportunities for both inflation
hedges.

 

Let’s be
blunt, the Fed is going to do one thing and one thing only: print money. And
while stocks might benefit somewhat from this, inflation hedges like Gold and
Silver will positively EXPLODE higher.

 

After all,
while stocks are up only 31% in REAL terms, Gold has soared 58% while Silver
has more than DOUBLED. One can only imagine the returns investors will see in
the coming years as the world’s central banks (lead by the Fed) print us into
oblivion.

 

Good
Investing!

 

Graham
Summers

 

PS. If
you’re getting worried about the future of the stock market and have yet to
take steps to prepare for the Second Round of the Financial Crisis… I highly
suggest you download my FREE Special Report specifying exactly how to prepare
for what’s to come.

 

I call it The Financial Crisis “Round Two” Survival
Kit
. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).

 

Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.

 

PPS. We ALSO
publish a FREE Special Report on Inflation detailing three investments that
have all already SOARED as a result of the Fed’s monetary policy.

You can
access this Report at the link above.

 

 

 

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Fri, 01/21/2011 - 08:03 | 892750 TradingJoe
TradingJoe's picture

Debating Benjie's "policies" makes for lots of fun but in the end there is no other conclusion then...Insanity Has Its Price! Solution...Go With The Flow...Make Brother With The Devil, if this helps you cross the Bridge! Look after your own interests and Kin! If they throw money at the "markets" try to get some of that..."trend investing" :)))?! Other then that have fun blow some of that useless paper on useful things like going to Vegas, buy a new car, things that will help you shelter some of that dough and of course the old time classic:guns, ammo, canned food, water...etc ...you know...the really fun stuff!

Fri, 01/21/2011 - 06:06 | 892695 topcallingtroll
topcallingtroll's picture

It is our dollar and your problem.

Fri, 01/21/2011 - 07:13 | 892728 AnAnonymous
AnAnonymous's picture

John Connally, Secretary to Treasury under Nixon... Or someone at least.

Fri, 01/21/2011 - 06:05 | 892694 topcallingtroll
topcallingtroll's picture

Food inflation has only ocurred in countries with official or de facto dollar pegs. Artificially low pegs steal our physical capital base. I have no sympathy for peggers. Food inflation in buttfuckistan is not berskanke's fault. End your pegs bitchez.

Fri, 01/21/2011 - 04:16 | 892654 AnAnonymous
AnAnonymous's picture

The author must come back to reality. The last issues of his reports are extremely poor.

Ben Bernanke, the US monetary hand, stated from the start that pumping up the markets was the best path to take. According to his studies, this is what would be the most benefitial for 'everyone'

It was stated from the start.

Fri, 01/21/2011 - 02:45 | 892600 rumblefish
rumblefish's picture

to make sure i have my head around this, the reference points in the authors post above for QE, is he referring to the time the fed announced. I dont recall the fed making an announcement for QE in March 09.

 

does anything outside of POMO make up QE?

Fri, 01/21/2011 - 02:02 | 892577 Dr. Sandi
Dr. Sandi's picture

Big Ben is the rich geezer who always promises he won't come in your mouth.

And when you notice a warm spurt of viscous manjuice up and down your tongue, he says, "Hey Babe, that wasn't me, that was the Chinese. Now move closer and let me juice up your economy."

Fri, 01/21/2011 - 02:32 | 892593 StychoKiller
StychoKiller's picture

That's when a quick rabbit punch to the 'nads is in order!

Fri, 01/21/2011 - 02:52 | 892605 GoinFawr
GoinFawr's picture

http://en.wikipedia.org/wiki/Rabbit_punch

I knew there was something about that that was bugging me...

@Dr. Sandi: yeech.

Fri, 01/21/2011 - 01:21 | 892520 blindman
blindman's picture

@"The Biggest Lie in Finance Today"

is that an essentially expanding debt based monetary system can

function effectively for a population constrained by

real and physical limits that render the required expansion

an impossibility.  the system failed and has been propped up

with fraud and exportation of failure and fraud and this has been

packaged and sold as innovation and risk assets, which is also a failure

and a greater debt that can never be paid.  the symbol, the federal

reserve note, itself, is the biggest lie in finance today.  sorry to

say and imo.  the sooner "we" get a grip the better our chances of

living, is my hope, and it is we because money is a we thing.  not a

us vs. them.

keeping the market up is the only way ben keeps his job.  if it tanks

he is gone.  my guess.  for that matter if the market tanks the fed

itself is probably toast.  no public support whatever at that point.?

i think they figured that out in the 80's when the ppt was outed. ?

Fri, 01/21/2011 - 01:19 | 892514 USGrant
USGrant's picture

The 2 reasons for QE:

1) bail out the $*% trillions in derivative positions that the banks hold (which depend on house prices)

2) screw the mercantilist emerging market countries

Neither is complete so QE will last for a couple of more years.

 

Fri, 01/21/2011 - 00:46 | 892447 Mentaliusanything
Mentaliusanything's picture

And when QE stops .......... Well its like a junky .... Yah going to get the shakes and crash.

Or like the hangover from a free booze fuelled hangover. .. its going to be painful and come with lots of mess to Clean up.

Carry on...... Its not over till this Fat Lady runs out of breath.

Fri, 01/21/2011 - 00:23 | 892401 Dr. Porkchop
Dr. Porkchop's picture

It's not a lie...if you believe it.

 

     -George Costanza

Thu, 01/20/2011 - 23:47 | 892311 illyia
illyia's picture

we are surrounded...

Thu, 01/20/2011 - 23:10 | 892242 rosiescenario
rosiescenario's picture

"7.3 million people have lost their jobs since the Bear Stearns collapse."

 

....and I would hazard a guess that damn near that same number (who still have jobs) took major cuts in pay.

 

My pet peeve on this jobs created / jobs lost accounting is that the numbers never take into account earnings....so we create 20 $8/hr burgher flipper positions and lose 10 $80K per year ones....did we gain or lose???

How many of these newly created jobs no longer include health care coverage? It is one thing for our government to publish misleading numbers, but lets not do it to ourselves....lets call a spade a spade....the few new jobs being created suck.

Thu, 01/20/2011 - 22:46 | 892212 mouser98
mouser98's picture

However, even his claim that QE has pushed stocks higher is a big fat lie as MOST of stocks’ gains have been a direct result of inflation or decreased purchasing power.

Its not really a lie, inflation is a direct result of QE.  Inflation simply means that the amount of money in the market has increased more than the market has grown.  In our case, the market has probably done more shrinking than growing, so any amount of QE will be inflationary.

I read an interesting article the other day where the author suggested that hyperinflation will only occur when politicians own the printing presses.  Politicians are so shortsighted and want to avoid the very visible and public pain of mass foreclosures, and resulting personal pain of public anger.  

Bankers on the other hand, won't risk hyperinflation, after all, it makes all of the debt they hold worthless.  And Bernanke works for the bankers.  So, there will be no QE-infinity.  Sooner or later, the brake lever will be pulled and real pain will begin.

Fri, 01/21/2011 - 01:22 | 892522 RockyRacoon
RockyRacoon's picture

You assume that they have infinite control.  That would be the first time it ever happened in a controlled fashion.  Greed always gets the upper hand in these matters.  It'll be too late when the first ones break for the exits.

Fri, 01/21/2011 - 07:30 | 892736 mouser98
mouser98's picture

is there evidence they don't have infinite control?

Fri, 01/21/2011 - 11:50 | 893314 RockyRacoon
RockyRacoon's picture

Not unless they intend for the current financial and economic statistics to prevail, otherwise they would move the markets to provide for a more conducive environment for the plundering/looting to continue.  The middle class turnips still have some blood to extract, but that can only be done with the compliance of the unaware.   They are becoming aware.

Thu, 01/20/2011 - 22:30 | 892178 CulturalEngineer
CulturalEngineer's picture

Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.

- Reinhold Niebuhr, Moral Man and Immoral Society

 

Ayn Rand & Alan Greenspan: The Altruism Fly in the Objectivist Ointment

Compensation and the Social Network

Thu, 01/20/2011 - 23:34 | 892277 JohnG
JohnG's picture

What's your point exactly?

Fri, 01/21/2011 - 01:01 | 892458 CulturalEngineer
CulturalEngineer's picture

I assume you refer to 'my point' as opposed to the quote I cite...

Really part of a longer point maybe than the links can present but generally that our cognitive frameworks... our weighing of alternatives and consequences in decision situations, our rationalizations...

are shaped more than we recognize by biological drives. In fact rationality at all ONLY arose to serve those biological drives.

The individual survival instinct is straight forward... and scales directly from our hunter-gatherer origins... its problematic sides are actually easier to deal with in some ways...

But biological altruism's effects are NOT so easily dealt with... or often even recognized... Because its tied to our small, Dunbar's Number-sized group origins... but that's not the world we live in.

For instance and INTELLECTUALLY altruistic argument can be (and was) made in support of globalization and the export of high-wage jobs to low-wage countries... that it would in the long run serve to create a more equal, balanced world economy! And there's truth in this.

However, if the negotiators of those agreements (on both sides) had possessed a hypothetical 'universal altruism' they would have imposed labor conditions on the low-wage countries as well as shared the benefits reaped by the 'deal-makers' more equitably with those workers left behind...

This to me is the great betrayal of good representation undertaken by our leaders over the last few decades.

I'm not in fantasy land... ans don't expect 'universal, biologically enforced altruism' to hit any time soon...

That's why we have laws, and decision structures (like elections and legislatures) to counteract these tendencies. But systems get gamed... and frankly they need a lot of re-working in my opinion.

I believe the "altruism" problem is huge and not being dealt with in any systematic way.

The MOST important thing to keep in mind about altruism is that its NOT at root about being nice or kind...

Biological altruism is about defining in-group vs. out-group... and inevitably adds decision-bias.

In-group is family, tribe, social circle... out-group can be anybody else... from kill-on-sight-enemy to a neutral part of the landscape...

Intellectual altruism is great. I'm a fan! But the way to practice it is to devise mechanisms, structures, laws, taxes... whatever it takes to address its problematic older brother.

Intellectual altruism is why we care about a news story we read in the morning about a 100,000 people dying in Haiti... but biological altruism is why its sure as shit gonna REALLY ruin your day if your dog gets run-over later that morning.

Social Networks & The Social Organism: Healing the Breach

and (in my opinion) one of the needed technical remedies...

Finding Roots in a Shifting Landscape: Facebook and the Future of Social Networks

 

 

Fri, 01/21/2011 - 04:20 | 892656 AnAnonymous
AnAnonymous's picture

For instance and INTELLECTUALLY altruistic argument can be (and was) made in support of globalization and the export of high-wage jobs to low-wage countries... that it would in the long run serve to create a more equal, balanced world economy! And there's truth in this.

 

It has never been the purpose of globalization.

Globalization is a phenomenum that has spread over six centuries now. The US is a product of globalization.

Outsourcing comes from internal pressure. Outsourcing outside of the US has grown as necessary as it is to outsource some activities outside of Park Avenue.

It has never been about balancing the economy but all about concentrating wealth in specific regions of the world, in a smithian view of economics.

Casting altruism in is useless.

Fri, 01/21/2011 - 11:18 | 893173 CulturalEngineer
CulturalEngineer's picture

To clarify: I don't suggest it was the purpose... I suggest it was a central part of the rationalization that shapes the way decision-makers make, justify (especially to themselves) and implement decisions.

In other words... the six century trend you mention is real... I'm just suggestion that this global integration has been accompanied by far more war and social injustice than necessary.

And, though slightly peripheral... there may be good, sound biological/ecological reasons that as we move towards a globally integrated economy we should attend to resiliency questions by NOT creating such critical inter-dependence... 

Sustainability of global civilization may well depend on a sort of distributed resilience more than critical inter-dedpendence on necessities.

Idle speculation:

The Problem in Scaling Altruism: Where's the Intelligent Life?

Fri, 01/21/2011 - 16:58 | 894466 AnAnonymous
AnAnonymous's picture

Sustainability of global civilization may well depend on a sort of distributed resilience more than critical inter-dedpendence on necessities.

 

Trouble with this point is that some parts of the world have reached a point where they have outgrown their immediate environment with no quiet  perspective on sizing down.

These parts of the world have to maintain a necessities versus necessities approach.

A country that is exporting oil vs food, especially a country that is now experiencing starvation, might gain from developping resilience, that is improving its food gathering capacities which might include consuming more of their oil to achieve that point.

The troubles is that the other side of the deal, the one is exporting food vs oil is unlikely to replicate the  resiliency scheme. This side has to import oil.

It is non negotiable.

Fri, 01/21/2011 - 02:46 | 892601 GoinFawr
GoinFawr's picture

I bet Johnny is sorry he asked. But I'm not.

Regards

Thu, 01/20/2011 - 22:13 | 892133 wcvarones
wcvarones's picture

"we now have direct evidence that the Fed’s policies are actually killing people... literally." It wouldn't be the first time. Ever hear of Greenspan's Body Count?

Thu, 01/20/2011 - 22:02 | 892103 muniguy
muniguy's picture

Why does this remind me of Soylent Green?

You tell everybody. Listen to me, Hatcher. You've gotta tell them! Soylent Green is people! We've gotta stop them somehow!

Thu, 01/20/2011 - 21:47 | 892065 SITruth
SITruth's picture

Wait.  I heard Steve Leesman say today that QE2 was done to force China to raise its currency.

Fri, 01/21/2011 - 05:29 | 892681 johny2
johny2's picture

I thought so as well. Game of Chicken, only the biggest holders of dollar and treasuries are USA people, so its more like holding a gun to your head and trying to use this as a bargaining chip.

Fri, 01/21/2011 - 01:23 | 892526 nobita
nobita's picture

well he is right about that.

China is on a roll and is on its way to become a superpower and thus a real geopolitical threat to America. Now the FED is printing money and giving it to the banks. The banks in turn put quite a bit of that money in food derivatives and futures and such. Raising the price of food worldwide.

Now China has to deal with their hundreds of millions of dirt poor people having trouble paying for food. Their plight will result in social unrest. Beijing will have their hands full crushing decent at home and will thus not be capable to challange America on the world stage.

This strategy makes sense when you consider that America has huge amouts of areable land and China does not. Americas farmers are also much more high tech than their chinese counterparts.

Fri, 01/21/2011 - 07:52 | 892743 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

There are things which can be said directly and of course, many that cannot.

The FED CANNOT say that they are debasing the currency in order to put pressure on the Chinese peg to the USD (even the peg is not official anymore, China having come "off" the USD peg in 2005 ...). What they can say is that under their dual mandate of full employment and price stability, with unemployment over of 10% and 20% real and the specter of deflation hovering (which is simply the logical consequence of a necessary period of deleveraging after the Credit Bubble), that they have carte blanche with monetary policy in order to address this. They CAN say that they therefore want inflation to return within their target band and engage in Quantitative Easing. They CAN say that Quantitative Easing is not monitization of US Debt, since they are buying Treasuries in the secondary market. Techincally speaking, they would have to buy directly from the Treasury for this to be monetization. (ZH of course CAN say that bonds issued by the Treasury and bought by the FED from the primary dealers within a week of issuance is about as brazen as the sleight of hand gets).

The average Chinese spends 50% of disposable income on food. That's an average. In rural areas versus the industrial coast, that percentage would be higher. The average American spends 10% or less. The 6% of the world's arable land in China is being paved over by parking lots, condos and ghost malls since Provincial leaders make more money personally and fulfill their growth quotas from Beijing in this fashion. So the FED CANNOT say that QE is putting enormous pressure on China to break the peg and let the RMB appreciate, by raising inflation directly in commodities which have entered a speculative feedback loop of "reasons", almost one can argue even better that feedback loop that oil was in when it hit close to $150. The FED CANNOT say that the Chinese people will be unable to afford their food. Nor can the FED say that if China wants to subsidize food, they have $3TN of reserves that the FED will gladly buy from them ...

And what the FED definitely CANNOT and WILL NOT say, nor anyone else in government for that matter, is that until the gradient for LABOR ARBITRAGE is normalized, including cost of transportation etc., until labor costs in America can normalize with Asian labor, then the jobs that have been lost and the middle class that is being eviscerated, will never recover. Nor will the FED say that US Corporations and a global elite

http://www.theatlantic.com/magazine/archive/2011/01/the-rise-of-the-new-...

no longer share a common interest of prosperity with the American people.

 

If you stand outside of the debate on monetary policy and sound versus fiat currency, from a cold hard view of real politik, you could almost say the the FED is the only one who is actually fighting for the American people, by squaring off against China's mercantilist policies ... A twisted logic indeed, but well worth considering.

 

Fri, 01/21/2011 - 16:50 | 894443 AnAnonymous
AnAnonymous's picture

that until the gradient for LABOR ARBITRAGE is normalized, including cost of transportation etc., until labor costs in America can normalize with Asian labor, then the jobs that have been lost and the middle class that is being eviscerated, will never recover. Nor will the FED say that US Corporations and a global elite

 

Stupid. Labour arbitration is sheerly stupid. The US has never worked on labour arbitration and never will.

Outsourcing comes from internal pressures within the US.

A reminder on what outsourcing was supposed to be: a world tour of misery.

End of the 1970s, the following strategy (the continuation of what happend on the US territority) emerged:

-find a country with low quality in general environment, enough social structures, sugar coated with work ethics

-implant activities

-as the locals benefit from regular and steady activities, they invest in bettering their environment. Can mean getting hot running water, showers and stuff...

-these improvements show on the wage bill.

-at the point, call locals, tell them they have been understood and no longer want to work.

-move to another country

This pattern worked for some time but was screwed by China as the Chinese managed to raise their standards without leaving an option to drop them. That is another story though.

The main story is that labour arbitration has never been in the box.

Transfering wealth to the US from an exterior at the lower cost has always been the goal and that way of managing outsourcing perfectly serves the goal.

Sat, 01/22/2011 - 10:51 | 895624 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Has US investment in and imports from China been detrimental to "China"? (I use quotes because between the CCP, the growing entrepreneurs, the non Han in Tibet and Xinjiang, the peasants in the interior and the slave labor called "migrant workers", I'm never sure who exactly China is.)

Have other low cost producers in Asia fallen apart after the US "moved on" (and ostensibly now stuck in China in your view)?

As an aside, your response would be easier to read if you used "arbitrage" in lieu of "arbitration" ...

Fri, 01/21/2011 - 16:40 | 894405 AnAnonymous
AnAnonymous's picture

That would be nice and square if indeed the US monetary policy was aimed at the Chinese peg.

Of course, the chinese peg is a good story as it shifts blame on the Chinese for US monetary policies, the US being unable to  associate with an endeavour of starving people around the world.

The US monetary machinery is another meat though. The US, peg or not, must have countries that export their goods against USD to give value to the US emissions of credits. Countries around the world want an access to commodities and the USD is the entry ticket.  Can only work if there is a commodity market. 

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