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Equity Market Being Propped Up As Market Remains Last Line Of Defense Against Deflation
3:20PM EST
Recent 1 to 1 Treasury to Equity correlation continues to break down as we noted monday...note Treasuries holding near high of the day as equities rally back into green...something is amiss in the financial markets right now with one of these markets being artificially skewed...again most likely culprit is equities as this market is much more easily manipulated due to lower liquidity profile relative to the treasury market....believe equities are being artificially propped up as a defense against widespread acceptance of deflationary pressures for if headlines start to cross that equities are cratering due to deflation, consumer spending will certainly come to a screeching halt (due to perception of lower asset prices in the future) which will certainly give deflation the green light to take hold of this economy...ultimately believe equity market pricing is the last line of defense against the reality of deflation which is why we are seeing such a strong defense against lower prices....in the end however, deflation is such a strong force that any attempt at short-term manipulation of asset prices will fail.
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the Fed has been buying spoos since March 2009, and will continue to as long as it takes.
deflation
defense
of less than nothing ..
The end game is near.. Forces beyond the control of the manipulation of the Government PPT
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
are now moving the Markets as the Currency Futures are spelling Match point in the Equity Markets. Japanese Yen Futures are about to break past the magical 11.600 level which would spell the Death knell for equities..
http://chart.ly/p972h3
Today's CBOE 0.99 (Call Put) confirms a major risk off within the next 5-10 trading sessions. Well, that or a ballistic retracement based on exogenous factors (see also: QE adrenaline shot / Hyperinflationary Portfolio Manager's Nocturnal Emission).
Either way, the Bond Vigilantes will win.
Before midterms?
Dunno. But Imma stick at the short end of the curve.
Beastie Boys - Something's Got To Give
http://www.youtube.com/watch?v=qk43YILTYNw
Agreed. If the SM tanked and banks started working through their non-permorning loans, foreclosing and selling the properties, people would realize that we are in the midst of a slow-motion economic collapse.
Isn't it possible that the early and signifcant rise of the market off the March 2009 lows was done with no net cash out or very little cash out from the Feds? Seems like they lured buyers in and when things started to take off there always was some measured selling to net back their buy positions and recharge for the next buying round. With Goldman and other market makers in line, seems like this manipulation was pretty doable with the low volume and few sellers out there (i.e., most that had wanted to sell did and those that rode it out certainly weren't going to sell after the lows).
As the market has topped out though, this neutral/near neutral market suport probably has become impossible to maintain. As waves of selling come in on various stocks with bad news, the buying support has difficulty netting back with sells to other traders/buyers at the top: Thus real money entering the money supply. At some point, this will cause problems but likely not for some time as this money probably won't have any velocity for some time. Still, if this support of the stock market continues, essentially the Fed and each corporation participating in stock support will own the market. I think the overall market cap is something like 12-14 trillion. Would they draw a line in the sand and buy up to that level? I doubt it but who knows how far it can go?
then why are you reading the article or wasting your time blogging on this thread you "creepy little turd"?
Spot on Leo and you hit it right on the head Boilermaker. As Leo pointed out with the Ice Berg analogy that they are stearing it toward it of hyperinflation and will turn in time before it happens (if they are crazy to do it). I'm with Leo in that the people driving this ship and/or the team down 4 touchdowns are desperate pure and simple. If you don't believe me think back before Obama got elected and during Bush and the other Treasury secretary (forgot his name, tall bald dude). Any how they where coming out every 6 weeks with something new or different or even trying to browbeat people and the market into some action and it wasn't working. You don't do that unless your truly at the end of your rope and Paulson (I remember his name) was along with Bernanke. The only way they got those two 750 billion a piece bank bailouts was telling them that if this doesn't pass we are in a depression.
They are desperate and are afraid, they are trying to thread the fine line between Hyperinflation and Deflation and it has never been done successfully. And the reason why is that it's literally impossible to control all the variables that can easily push us over the cliff into Hyperinflation or over the cliff into Deflation. Remember when you where a child your mother didn't want you to go to close to the edge of a hole or a ravine or a dog whatever. It's because there is always a percentage of a situation that is UNKNOWN, and she's trying to give you and her a buffer so a certain reaction from her or you can be done if the UNKNOWN situation goes into a KNOWN one. They think they have it under control but they don't, they are trying to ride this out with the country and the world and it won't work.
I will tell all of you what I think will be the push for us, and that is the states who are having budget crisis (and need bailouts, but won't get it because if one gets it the rest will want it. And what this would do is make it a certain that inflation would start, because that hot money would immediately go into the economy from the states, instead of into bonds and offshore accounts to keep it from the US economy) and the retire's that are filling out their paperwork for their SS or pensions or both and even Medicare and Medicaid.
We are screwed and many outside the US know it.
There's still a really, really big economy in the US - let's not be silly. It's just not as big as it was blown out to be by the Wealth Extractors, whom Paulson, Geithner, Summers etc. answer to. And now, it has to contract, which will not be pleasant. But there is a state of equilibrium a bit further down the road.
A hard rain's gonna fall, is all.
The problem with our economy is know one can really quantify it. GDP consists of so many weird ass things....e.g., if a guy(gal) gets laid off, the money they no longer spend on imports is counted towards GDP.... So tell me, how "big" is our economy? If the gov spends $350,000 to fund a new job, GDP. The money that person makes, GDP. It's a net loss but it counts as growth? WTF?
Anyone who's "with Leo" is a creepy a little turd as Leo is. Is he really a person, or a construct of the Addams family?
Anyone who's "with Leo" is a creepy a little turd as Leo is.
I don't think that I could ever forgive Leo Kolivakis for abandoning Kira Argounova and running off to the Caucasus with Antonina Pavlovna.
This should be seen for what it is: Mellonesque liquidation. They're not reflating anything or maintaining the value of anything. They're LOOTING.
Always happens in Mellonesque liquidation. The point is, there will come a time when power removes itself from this particular gambit (you tell me the reason). Then the market will fall.
Too bad Mellonesque liquidation is not studied closely. It's because
1. the middle class has no conception of power; and
2. the middle class thinks the health and welfare regime abolishes liquidation.
Bad mistakes on both counts.
From Wikipedia:
Mellon became unpopular with the onset of the Great Depression. He advised Herbert Hoover to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."Additionally, he advocated the weeding out "weak" banks as a harsh but necessary prerequisite to the recovery of the banking system. This "weeding out" was accomplished through refusing to lend cash to banks (taking loans and other investments as collateral), and by refusing to put more cash in circulation. He advocated spending cuts to keep the federal budget balanced, and opposed fiscal stimulus measures.
In January 1932, Rep. Wright Patman and others introduced articles of Impeachment against Mellon. After the hearings were over, but before the scheduled vote on whether to report the articles to the full House, Mellon accepted an appointment to the post of US Ambassador and resigned, thus rendering further action on the issue moot.
He does not sound too much like Geithner--it seems that Mellon advocated no stimulus where Geithner at best does not seem to mind stimulus -- at worst, he is very willing to support stimulus.
The whole concept of liquidating labor and farming makes absolutely no sense to me though. How does the government, which has no ownership of a laborer or a farm, liquidate it? Can someone explain how the federal government liquidates labor and farming? I can see how they may liquidate stocks and real estate as I believe they have filled their books with such through the fed--but farming and labor?
Now there is a concept that needs expansion. Thanks for the brain food.
Got any links to pursue this further?
Interesting observation. At least Mellon was honest about what he knew was necessary? Besides being a super-rich douchebag, I mean.
The problem here is that anyone with a brain has figured out that the market is being artificially supported. Hence we have net negative demand for stocks, and any stock with reasonably good liquidity is being sold. Now there are those without the brains, otherwise known as the hft algos. they love this intervention because it allows them to ramp garbage to crazy heights "knowing" wink wink that little timmy and ben stand behind them. but, as early 2000 demonstrated, at some point even the dumbest sensense gravities pull down. All more QE/equity purchase by proxy will do is blow the algo bubble out a few more standard deviations while creating limited natural demand for investment. when the algos get nervous about the distance between them and reality, the pace and scale of collapse in their universe of stocks, which the likes of cramer and the fast money traders will tell their limited audience to buy buy buy will destroy the equity market for a period of time similar to the 1930's episode. we r so fckd with closwns like bernanke and geithner confusing their power with omnipotance.
Just a question, but wouldn't deflation preserve the dollar and not allow the amero or one world currency to happen? I thought the whole idea of the central banks was to get the world on one currency? Would deflation leave the people begging for a new currency or prevent it? You're all obviously more intelligent on the subject than I am so I'm just throwing this out there.
Central Banks were created to provide credit to governments to fund wars and social projects. Forget about the Amero; it's a non-starter. Study Argentina, they had a deflationary period right before a significant devaluation (hyperinflation). Japan's been in a deflation and they're still using the Yen, their citizens are nearly tapped out of savings preventing them from buying their own bonds further. Hyperinflation next for them? They'll demand a new currency then. The demand for a new currency will be determined by how the deflation is handled. I can't see a one world currency in my lifetime anyway.
Stocks probably will continue to go up as long as we let criminals man the printing presses, but not as much as GOLD!!!!
"...in the end however, deflation is such a strong force that any attempt at short-term manipulation of asset prices will fail."
Are people any less productive? No. Has some convergence of stellar events lined up which induces such a slow down? No.
Its because Grandpa's Tractor has a gas tank defect which leaks over time. Designed right into it! Poor design! Time for the scrap heap before it takes out the rest of the farm. Lesson: don't design mechanisms which "eat" the humans... And yes, that IS a robot on Granpa's old tractor riding it wildly to its last sip of petrol...
http://www.perfecteconomy.com/pg-artificial-sustention.html
Cool beans there, Surfer.
QE2 is already up and running,just not officially announced as such.The real question is are they prepared to gamble enough to break the whole system or will they reach a point where they will allow things to fall of their own accord or where the political fallout will be acceptable and containable.
"will allow things to fall of their own accord"
Because of constant monetary stimulation, the economy never had a chance to wring out excesses. Now that the stimulus effect is wearing off, the economy resumes it's normal corrective behavior. Which should come as no surprise! Except to those who fear deflation (deleveraging) the most. Hence the central bankers rev up the printing presses so as to prevent additional price deflation.
Eventually, at some point price deflation (deleveraging) comes to an end. Then, as activity picks up, prices will rise rapidly as central banks have already printed an overabundance of money.
Not only are they willing to gamble, but they are betting it all on 22 black. The system is broken. We are down to slinging back to back to back hail mary bombs. Problem is, we are down by 4 touchdowns. Ok, enough with the sports analogies.
We are fucked.
Actually, they're betting it all on 22 red. And since they own the wheel, the ball and the paint, any number and any color they want will come up.
Laws are optional, of course.
I will repeat: they'll do whatever it takes to reflate all risk assets, and hopefully introduce some inflation in the system. If they have to, they will buy equities, all under the guise of QE 2.0.
I am not sure I completely understand the reasons for reflation. The Fed could increase economic activity by making things less expensive relative to earnings instead of more expensive.
Earnings changes lag prices. If people have more money relative to the cost of things then money velocity should increase and REAL GDP should increase even though the top line GDP number might decrease because inflation is negative.
It seems to me that we would be giving up false growth for real growth and the only real hit would have to be taken by the holders of debt as huge chunks would have to be written off.... and the bank shareholders/owners might suffer.... well I guess that explains why the Fed would never accept deflation as a fix.
Leo,
dude, i wanna be a believer but i'm plagued by chiggers, ringworm and a crummy fico score.
what in god's name do we have to do we get the crime cartel to start being humongous, big time buyers of these stinking chinese solars............?????????????
"they'll do whatever it takes to reflate all risk assets, and hopefully introduce some inflation in the system."
We can agree on something, at least.
Japan has been trying for the last 20 years, with the 90s providing nearly ideal conditions for reflation.
I'd have to go look up the 90s, but since 2000 alone, they did *10* stimulus packages of 7% of GDP without success. I can guarantee you, the US cannot pass another one.
Hell, the Japanese even *tell* you officially that they're buying equities.
They had every advantage: a strong export economy (we primarily export grains and bad debt), the highest savings rate in the developed world (now eroded), a budget surplus (pissed away now by failed stimulus), cheap oil throughout the 90s, and the fact that their bubble was primarily in CRE (which wouldn't impact the consumer as much as our credit bubble-fueled RRE crash). The only reason I can see to believe the US will succeed where they have spectacularly failed is faith in American exceptionalism.
The only thing they can inflate that matters are wages. That won't happen in a world where labor arbitrage rules.
B-I-N-G-O!
"The only thing they can inflate that matters are wages. That won't happen in a world where labor arbitrage rules."
So Leo. Help me out. I like reading you. You seem like a smart and decent guy. That said, why are you always rooting for the Fed, QE, inflation, risk assets, etc. In short, it appears you're happy with and fully endorse the pre-2008 status quo. True?
I don't get the sense that Leo "roots for the fed"--he simply is the ultimate "trend is your friend" observer. His basic thesis is sound: the Treasury-Fed-Wall Street syndicate will take all measures--legal and otherwise--to reflate assets to previous highs and beyond. Different constituencies within the syndicate have different motivations--owners of depressed assets would like to see reflation at least to the point of "escape acceptability"; Bernanke has a remarkable ego, and wants his legacy to be that of market/societal savior; and I'm even willing to bet that some people somewhere in the snakepit actually believe they are "doing the right thing" by preventing a Tainterian collapse of western capitalism that triggers a step-down re-calibration of western society.
I agree with Leo, because too much money, power and influence are massed on the side of reflation. But I'm no longer certain that the Syndicate can succeed, which is why I'm 60% cash, 20% PMs, 20% short. My "long" exposure is my job, my health insurance and my pension. If things work out, then the latter asset group will remain intact and will perform positively, and all will be well--even if my shorts go to zero. But if the Syndicate fails, I feel I'm properly hedged for any re-set, short of Thunderdome...
Leo,
But don't you think part of that "do what whatever it takes" could be to first let the equities tank in order to herd the sheople into supporting a double down?
In my view that is exactly what they are going to do. Down 14,000+.
Leo, you are right they are going to try and reflate assests. Deflationary pressures from the enormous debt bubble are too much though. They will fail.
And all that will do Leo , is push risk prices lower when the fat lady finally sings.
The Fed , contrary to what you think , even with a printing press , are not God of markets. One should never fight the fed , but the fed should NEVER fight the market either. Bond markets lead fed policy , and all the printing in the world will not kick start the economy. It will just drive home how fked the system is and reinforce a deflationary mindset.
The paradox of thrift my dear boy. The self fulfilling debt liquidity trap.
Enjoy your bear market rallies whilst they last.
Excellent thoughts, Momo. That " fight the Fed " mantra is getting stale-dated real fast.....like the attitude about the unsinkable Titanic.
The caveat being Rainman , that if the Fed are stupid or wanton enough to steer straight into the iceberg thinking their hull can take it. This would usher in a Weimer Rep scenario. But in that instance , it will happen so suddenly , no one will be positioned accordingly. And all it would do is ultimately lead to the Feds demise and take a great seldgehammer to society , far moreso than the slow motion trainwreck of the primary deflationary and deleveraging force upon us now.
A hyperinflation shock puts too much at jeapody for the scumbags at the helm. They will blink before it comes to that and settle for Japan. The alternative so soon is too much to lose.
Yes, but the captains of the CBs all have life boats at the ready by the time they hit the hyperinflation iceberg. Forget the women and children.
For more info on sinking ship escapes by Fed Chairmen, google the name GREENSPAN and RETIREMENT.
'women and children'?? you mean strippers and lust childs
So, aside from the fact that they are ALREADY buying equities by proxy, your suggesting they will just simply accelerate and expand the purchases to astronomical valuations...beyond their already ridiculous level.
Well, shit, I guess that has to work better than reality and in accordance with law. I wonder where and when the Federal Reserve was granted such powers and when and where my kid signed up to have a shitty future to protect the current elite class.
Not only to reflate by any means possible, but to do so is Politically Correct.... forget not that November Arriveth Soon.
Elect whom we will -- the status quo of us federal government expansion will continue until the golden goose is dead. None of them care and we all - including them - will suffer the outcome.
And by coincidence, so does a possible Canadian Election
Anyone else running elections around the same time that are national?
Your parents registered your birth certificate, just as you did for your child. In addition, every time you register to vote, get a new driver's license, or in fact a million other "small" things, you re-affirm yourself as a "c"itizen. By doing so you have re-affirmed your place as an asset of a Bankrupt Corporation called United States. And as such you are in the pool with all other citizens who are paying off the debt of that Bankruptcy, a receivership.
The FED is the intermediary in that relationship doing its best by whatever means necessary to pay off that debt.
The FED is not subject to U.S. Corporate Law as it is outside of that structure. Also included in that extra-US group are all attorneys (Esq.) and all officers of all branches of government (police, military, etc).
This is a very simple summary, the reality although similar is more complex.
A very long time ago (1783) truth diverged from reality. And no one can say to the masses what the truth is because it is too much to tell. It is literally mind destroying, the destruction of the United States as a society. In truth, it is a fiction. It is a truly Big Lie.
Take care.
Not that anyone actual pays attention to The Constitution these days, but I had read once that since the US is a corporation, The Constitution is a legal document of the corporation and I was not party to the document, I am not actually protected by The Constitution. Furthermore I am property of the US and the land that I think I owned is actually leased from the corporation (or that is how he contract reads).
That aside, the Fed is the entity that made it mathematically impossible for the US government to pay back the debt through the assessment of interest instead of providing interest free money and therefore the Fed made the US government a debt slave to the bank.