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John Taylor On Why TARP II Will Follow Promptly After QE II
Pump and Dump
September 30, 2010
By John R. Taylor, Jr.
Chief Investment Officer
At the Jackson Hole conference near the end of August, Fed Chair Bernanke informed the markets that they should anticipate the Fed’s announcement of a new quantitative easing (QE II) effort in the near future. In response, the global equity markets began a powerful rally, which continues today. In the US, the stock market gave us the strongest September since 1939, and Bernanke is still advertising his future plans to inflate the money supply, stimulate inflation, and reflate the economy. The Fed’s strategy seems to go beyond the famous Greenspan ‘put’ or even the Plunge Protection Team, which is rumored to be on the bid whenever US equities are down sharply. Bernanke is being proactive. In the street vernacular, Bernanke’s words are pumping up the prospects for a future liquidity boom, and a very strong equity market. The next step in this process, as carried out by Wall Street’s more scurrilous denizens, would be to dump their lousy equity positions on the market at inflated prices – hence ‘pump and dump.’
Strange thing, the US Treasury has lots of stock to sell: Citibank, AIG, and General Motors. It seems that the US authorities are very interested in making as large a profit as possible on the TARP program and its other equity positions, perhaps trying to draw our attention away from the Fannie Mae and Freddie Mac messes. General Motors is currently worth somewhere between $60 and $85 billion dollars, up from zero eighteen months ago, and at any valuation over about $67 billion, the US would break even. As the offering will be finalized in a month or so, the pressure to get a good price will last for a while. Prior to that AIA, AIG’s very profitable Asian arm, should be sold for around $40 billion, allowing the repayment of AIG’s line of credit from the NY Fed with some left over. Even Citibank, the last of all the banks still owing money to TARP, looks to be a winner. For the government this Houdinilike escape from the horrifyingly large TARP bailout of almost exactly two years ago is a tremendous success, for those buying out the government’s position: caveat emptor!
Standing on its own, the outlook for the equity market is not rosy. Earnings have been boosted by cost reductions, by productivity, and by absorbing competitors with excess cash. The outlook for future growth can not be good when the mean forecast for GDP growth in the US next year is around 2% and even that is dependent on some optimistic projections for final sales and exports. With those facts weighing on the market, should the US government be out pushing equities to climb higher? It seems that it is the Fed’s and the administration’s highest priority to have the S&P rising every month. A quick review of the correlation tables shows that a climbing S&P has equaled a falling dollar, climbing commodity prices, and higher inflation. As there is no inflation to speak of – and fear of deflation is
rampant in some quarters – this strategy seems to have little risk, at least for the government and the average US family. Bernanke and his friends in the Treasury seem to be pulling a fast one on the world, inflating US assets and deflating US liabilities through a falling dollar, while giving the US companies a chance to fund themselves cheaply. The only ones who are harmed are not voters or, if they are, they don’t have many votes. However, those who own the most US assets and will be financing the US in the future can not be pleased by this. It might be that the Eurozone is short-sighted allowing the euro to rise (see A Race to Two Bottoms, September 23), but the US is not thinking about the long term either. This is a very short term game. If the economy does go into a recession next year, as we expect, equities will decline anyway, and the government’s escape will only be temporary.
TARP II will need to be rolled out alongside QE II and many will be left with a sour taste in their mouths.
h/t Teddy KGB
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Just what we need, revolution...
That's what I was thinking.
But then, perhaps it's the patriotic way to roll:
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. ... God forbid we should ever be twenty years without such a rebellion; what country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms." -- Thomas Jefferson to William Stephens Smith, 1787
LARRY SUMMERS' WINDOWS MESSAGE
http://williambanzai7.blogspot.com/2010/09/larry-summers-windows-message...
We gotta get the stuxnet cats to make that and have it shutdown wall st and the fed.
Trapped in TARP.
Tyler, please do me a favor? Post this info on Iron Mountain in a separate post. Let the sheep connect the dots regarding their future.
<<<November 20, 1967>>>
http://video.google.com/videoplay?docid=-6745627342652553091#
Thank you & I hope you understand my intent. If not, think Donkey Kong story.
. In 1972, Leonard Lewin came forward, admitting the book was a spoof and that he was its author.
They can't do it now. NOt legally anyway.
The Toxic Assest includes mortgages and foreclosures right? With all the freezing and the lawsuits going on, the Gov't. can't do a damn thing.
They can appropriate the money, but they cannot overturn an ongoing case, and certianly not the numbers of cases that are subject to the states rights!
The country is SO SCREWED NOW!!! The mortgage/foreclosure thingy really is that" "Black Swan", and nobody saw it coming this way.
YES, and then we can find out what is on the banks balance sheets via discovery, and finally find out the crap these criminals have been hiding. What kind of crappy assets they have in there!
This is the "Black Swan" event. I would not have figured this would take them all down, but it is widespread and SO WRONG!!!
These guys just TRY to run a TARP II through when those getting the money are being criminally tried for fraud, there will be congressmen shot in the street for being stupid.
True poetic justice.
"YES, and then we can find out what is on the banks balance sheets via discovery, and finally find out the crap these criminals have been hiding."
That "crap" is "your" liabilities, slave. And you will be made liable for them, whether by hook or by crook.
Yes SIR!
I will get back to rowing now, boss!
TARP is nothing but a roll of bills for hookers who don't need the revenue or anything they their proposition might generate. So are all politicians.
I think it was a mainlander who said tactics without strategy is the surest way to defeat.
Lyndon LaRouche, predicting hyperinflation two years ago, due to the bank bailouts:
http://www.youtube.com/watch?v=RI4mDXV0KeU&feature=related
Way back in about 2003-2004, I sensed housing (at least in LA) was going parabolic. My first "housing bubble" google search landed me at Lyndon's site. Back then, he laid a prescient scenario of where housing was headed. Respect.
I remember years ago my brother and I used to ridicule him because his opinions sounded insane. Those were the days when we believed we had a free press in America
We do have a Free Press ............. In Detroit.
He predicted marshal law and the cancelation of the presidential elections in 2008.
Yup and there was about 300,000 american's stripping gun stores of lethal injecton devices that probably changed those plans.
As John Connolly famously said circa 1971: "The dollar is our currency but your problem".
QEII will be covered up by TARPII, and TARPIII will be smoothed over with QEIII, and by this time we will be eating tomato sandwiches thanking god unemployment is only at 15% and DOW 25,000. We may have lost the retirement account had the DOW dropped to 7,000.
I like tomato sandwiches with good bread and bacon!
Sorry...
Wheat and pork bellies will be unafforable.
A fresh tomato slice wedged between two toasted tomato slices. Enjoy.
These officials need to be stopped. Tarp 1 failed to work. QE2 failed to work. Seems nobody learns from their mistakes. QE3,4,5,6 etc will all fail. You can not solve a debt problem by throwing more debt at it. Amazing....these guys are Ivy School Educated and they have managed to fuck up the country.
"You can not solve a debt problem by throwing more debt at it. Amazing....these guys are Ivy School Educated and they have managed to fuck up the country."
Throw money at the problem. This is the only way the ultra-wealthy know how to solve problems.
Little Johnny just wrecked the old Volvo we gave him on his sixteenth birthday party, what ought we to do?
Buy him a new Lexus, maybe then he will appreciate it.
Take a step back and see what's truly at stake here (and why I've always been firmly convinced that Ben will print and print and print...): the credibility of central planning. The centrally-planned and managed economy is the principle vehicle for looting the producer class. It is the basis of the ruling non-producer oligarchy class. The oligarchy draws its wealth here, and its power flows from its wealth, which lets it continue "in power" in a closed loop.
As this article so clearly illustrates, the central bank is the mechanism that provides the motive power for this machine. Need to convince taxpayers that they're going to profit from the hated TARP program and thus "prove" their hatred is misplaced? No problem; steal the money from them via inflation, and then lie to them about it.
Bernanke is trapped, and is thus committed to a course of action, a course that I believe Greenspan foresaw when he decided to "retire". There is no way out of the debt debacle, but printing money (in theory at least) offers a possibility. A sustained and self-reinforcing deflation destroys the economy, destroying tax revenue and the governments' ability to maintain the status quo. Remember that Comrade Roosevelt "solved" the deflation of GD One by devaluing the dollar by 70%.
If the economy fails, faith in government fails along with it, and especially faith in the PhD-holding geniuses at the central bank. I know that GD One saw a great increase in government power; people are much more aware this time around. 1930's Americans were, to a much greater extent, naive, honest, hard-working folks who trusted their government. That is certainly not the case today. So the central bank must do the only thing it can: print money. The alternative is guaranteed failure almost immediately. The citizenry is already riled up and this government will be radically altered if we go into a self-reinforcing deflation. The notion of central planning will fail, and along with it the power structure of the oligarchy.
Bernanke is trapped.
Bernanke is trapped.
Yes, indeed.
Once a fiat-based fractional-reserve monetary system reaches the point of debt saturation, there is no way out.
That's just not so, my friend. It's been a resounding success with the banks. Life is great when you get interest free credit and you can invest the proceeds in 10 year notes.
The rest of you just need to suck it up.
Yes, DrFever - you need to look again at who TARP, QE were aimed at and re-evaluate their success. The Fed is a privately held banking cartel. QE/TARP were very successful in that light - it took taxpayer assets and transferred them to the banks. Mission Accomplished. So long, and thanks for all the fish!
It is not an accidental screw-up, but rather bred into the system.
I totally forgot about the Tarp. I agree with you, they will attempt a TARP II and people will go ballistic. Many will say these banks should have fixed their problems and 2 years later we have to do the same thing because all those trillions of dollars (which could have paid for universal healthcare many times over) just went down a money pit of a bank. People will wonder where is the money coming from for all the trillions of dollars given to a few banks. A few trillion this quarter and a few trillion that quarter, whats the difference. It's all just printed money and the fed and the rest of the world knows it. When you keep bailing out your financial institutions over and over again, it's not a market mistake. Its that they have lied and cheated and by hook or by crook stoled the financial solvency of the US from the population. And what they are doing is trying to cover up the crime, because they don't want to be faulted for their incompetence and greed.
It doesn't matter how big the rug is, if you put enough elephants under it eventually people are going to find out you have elephants in the room.
Who will go ballistic? The Administration will crow about all the money they made on C, GM, and AIG just in time for the election and then proceed with Tarp II in December. (Remember big financial pow wow in first week of December).
Since when in a future courtroom will it not be a felony to use taxpayer monies to buy, opps, trade equities?!
fuck the ROW. They been pulling this same shit for decades. ROW was all too happy to have jobs and produce on the backs of US debt and the dollar system.
Guys, though, even Weimar took a couple of years to unfold. We're not going to wake up one day to a monetary apocalypse. Sep 08 was as close as we'll come...they will, as I have consistently said for years now on this and other forums, continue to print money because it solves the math problem of deflation.
In Weimar they watched the dollar with amusement, then fascination, then amazement. You are correct - it took years before amazement morphed into despair. Today it is gold that shines the light on the roaches. We shall see if the rest of your prediction holds.
.... why are these people allowed to get away with this crap anymore ! END THE FEDERAL RESERVE BANK .
inflating US assets and deflating US liabilities...lol,bravo. Lets hope no one catches on.
I say we bail and just start from scratch. Leave these scoundrels behind and take earth down with them.
http://www.nytimes.com/2010/09/30/science/space/30planet.html?hp
Timmy just laughs
http://kissarmy.50megs.com/Geithner2.png
Problem? Guys, this is the same play from the same playbook these fuckers have been running... FOREVER. What we see as a problem they see as going according to plan. It's so hard to believe it's just the nature of greed.
I hope the author isn't suggesting we have both fiscal and monetary stimulus at the same time, again...
These people are all just a bunch of delusional assholes.
Just give them plenty of rope. They're just about out. Won't be long.
No MSM will have this front and centre, but Spain just got downgraded. Australia's housing market data this morning were just awful, but you won't hear about that either as the pumping of AUD and copper continues hoping tomorrow's Chinese PMI would once again "beat" (who cares if HSBC's china PMI was already announced yesterday, all we want to hear is "beat", even if its the same data point).
So who's next for a downgrade? France? Italy? UK seems appropriate but its "too big to downgrade", so Spain will have to do for now. But the market couldn't care less, EUR/JPY, EUR/CHF, GBP/JPY, AUD/JPY crosses are not backing off much from some impressive resistance levels today, merely painting a nice flag for the new month. Watch out bears and those still waiting for a correction from this absurd market - "risk on" is an understatement - the pumping has reached the dot-com feverish temperature of 2000. The fall will of course be totally unexpected.
Schumer said. "This sucker's game is never going to stop unless we finally call their bluff."
I couldn't agree with this guy more.
So Bernanke's Federal Reserve manipulation pumps up Wall Street pigs so the Treasury can sell 'at a profit' and then wash, rinse, repeat?
Brilliant!
Apologies for all bold, but this BS makes me sick! Am buying more physical gold today, F--k the Fed!
totally, we cant stop this shit, all we can do is sidestep it and avoid playing in their games as much as possible.
time to go 100% "all in" PMs and come back when their party's over.
It's cool, replace a debt bubble with more debt, that should work to slowly kill purchasing power. You will have more money and get less!
People will not notice if you throw in a little supply shock. Then we can blame someone in far aways lands with different religious beliefs.
Price stablility is not always a good thing. Long term if people got purchasing power back, they would ultimately be happier.
How about start a slow asset unwind? Maybe in some cases a quick purge?
The forecast calls for pain!
Honey, I won't TARP in your mouth, I promise!
CORRECTION: The only way these Ivy Leaguers know how to solve a problem is by throwing money...AT EACH OTHER!
I am here waiting for them to throw money at me...but then again WHY would they...I have not become a problem yet!
To the streets we go!
Just what the doctor ordered. More EX-LAX for the market. Were going to get a bad case of the Weimar Runs after this dose.
So what happens to the so called profits for the tax payers, does the govt give an equal share of the profit back to each TAXPAYER, not the non tax paying people, in the form of a treasury check? Or do they use the profit to fund more election costs? I want to be a gubbament man in the worse way, lament, sigh!!!
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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