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The Multi-Trillion Dollar Question For the Markets Pt 2
Is… Have
we reached the point at which additional liquidity and Central Bank
intervention no longer props up the markets?
In the case
of Japan, the answer is very likely.
Case in
point, the Japanese Central Bank has pumped over $400 billion into the markets
in the last week alone (this has to be some kind of record). However, they have
not been able to stop the Yen from soaring higher as the massive Yen carry
trade unwinds.
This is just
another instance that proves that markets are ultimately larger than any
Central Bank. The Japanese Central
Bank has managed to keep the Yen low for decades by maintaining a zero interest
rate policy and endless injections of liquidity.
Because of
this, the Yen became the global carry trade of choice with investors borrowing
TRILLIONS in Yen and investing them in higher yielding securities. And now that
the Yen is surging, these borrowers are being forced to deleverage, which is
pushing the Yen higher.
So in the
case of Japan, yes, the point at which additional Central Bank moves can prop
up the markets is ending.
What about
the US?
It’s not
totally certain, but we are definitely getting close.
Case in
point, during QE 1 (2009-2010) the Fed was pumping, on average, $50 billion or
so into the markets per month. Today’s it’s north of $100 billion. And the
stock market is nearly 100% higher than it was when QE 1 was announced.
So stocks
have doubled, but instead of lowering the liquidity infusions, the Fed has DOUBLED
them.
This alone
should tell you that the Fed is losing its grip on the market. The fact it’s
taking more and more money pumps just to keep the markets afloat should be a
MASSIVE red flag for all investors.
So should
this:
This is the weekly chart of the US Dollar. As you can see, we’ve broken the multi-year trendline,
which leaves only a few levels of support before we are literally in uncharted
territory.
In plain
terms, the US Dollar is getting close to a full-scale collapse. This is a direct result of the US Federal
Reserve’s moves. So the Fed can keep pumping money into the system to prop
up stocks… but it will kill the US Dollar in the process.
Indeed, sometime,
and I cannot say when exactly (but it’s soon), the markets will say “enough” to
the Fed’s money pumps. By “enough” I mean that additional liquidity will no
longer have any effect on the markets. This will likely occur simultaneously
with a US Dollar collapse or some kind of debt default in the US.
When this
happens, the REAL Crisis will hit. Those who think that 2008 was the REAL DEAL
are mistaken. The US is heading towards a situation similar to that which
occurred in Greece last year.
Best,
Graham
Summers
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One must wonder if Japan retrenching will be the trigger point to drop the US off a cliff.
http://goldandsilverlinings.com/?p=280
JLL- I don’t disagree with your subsidization through monetization statement. However, the employment and debt service issue is “debase or default”. Those jobs off-loaded will never come back unless we achieve some form of wage parity or develop some competitive and comparative advantage. The USD doesn’t have to singularly drop. The RMB can and will rise. Moreover, ask yourself, what were German wages in USD terms back in 1923?
Lots of hedgetards have been saying this very thing for months, and Graham gets props for repeating it? WTF???
"a MASSIVE red flag for all investors"
Right. You have to have blinders on to be an investor in the current market, in wich case you see no red flags.... or little green leprechauns.
Get ready to meet your new nieghbor and baby sit for his children to pay for your food. Yes he will be either Chinese or connected to a Middle East monarch. They will be only ones able to pay for taxes after buying your house for 40% less than you paid. The President will still be mumbling something about American ingeniuity, initiative , freedom and need to export while taking a reverse mortgage on the White House. Thats our future the way we are going.
Why can't central banks and politicians get their priorities straight, and start putting all that money to better use for social good, instead of continually trying to manipulate what are supposed to be free markets? It is such a joke that they preach the virtues of free market capitalism and then do not practice it. They need to get out of the trading business ASAP.
It's pretty simple: Mostly they're bankers. This is what they do. You aren't going to ask a rattlesnake to be nice and play with the kids are you. But the reason why a rattlesnake is better than a banker is a rattlesnake gives plenty of loud warnings before it injects poison into the system. Bankers are more like Cotton-Mouth Snakes sometimes referred to as Water Moccasins. They strike without warning and they don't let go. They just keep pouring it into the system until the system stops functioning or they run out of poison, whichever comes first.
Until people realize that a used car salesman in a buy-here pay-here used junk lot, dressed, in a 1970s polyester leisure suit with gold chains, white 70s Cadillac, white shoes, white belt and a white poodle are more trustworthy and snakes less dangerous, This shit will keep going on. They're Snake oil salesmen.
The mega billions that have been spent/printed to prop up crooked financial institutions is staggering. Think of the amount of US infrastructure that could have been built or rebuilt with that money. And we'd actually have something tangible and useful for the expenditure.
Trilateral monetary collapse (US/Yen/Euro) as the printing press goes wild and then the deflation starts as money has no hold on reality. Or will China fall before the others under its own hidden, hyper-inflated stress of banking/commodities bubbles?
Too many variables to determine until the Japanese and ME black swans have not come to rest. We have a dark period up ahead up to June 30...
in addition to his role as chairsatan of the frb, bernankrupt is also the marie antoinette of pre-revolutionary amerika, "let them eat fake..." dollars
he is as out of touch and buffoonish as the trivial antionette and louis xvi
Employment and debt service management are the FED's main priorities going forward. Once the USD is sufficiently debased, real debt will be reduced and jobs will return to our shores. Notwithstanding, let's get used to green shoots growing through asphalt. Goodbye standard of living.
<<< Once the USD is sufficiently debased, real debt will be reduced and jobs will return to our shores. >>>
You must be joking. A weak dollar is not going to result in the return of millions of jobs that were outsourced from the USA to low-wage countries. There is no way the dollar could fall that much to make real wages in the US competetive with slave labor wages in other parts of the world.
The Fed is subsidizing the US Congress by monetizing the debt and allowing Uncle Sam to spend big amounts of money. If the US Congress were required to produce a balanced budget (something that will probably never happen in your lifetime), there would be no need for the Fed to buy US Treasuries as the buyer of first resort.
Sous les paves, les portes de l'enfer.
Graham,
A lot of us are following PM movement... would appreciate some additional commentary on likely impact in your notes on PMs..
I really enjoy reading your materials.
There was an article posted last week by Summers explaining a likely 20-40% pull back off recent highs. I hope he's correct, daddy needs to tripple down, son!
Thanks. I'll check it out.
I'm presuming that when we go into bear market mode (DOW & S&P), a lot of liquidation will take place... meaning a plunge in PMs... with a fairly quick snap back.
I'm a little nervous now getting out of PMs when it is one of the few safe havens against the American Peso... I mean dollar.
http://www.telegraph.co.uk/finance/economics/5050407/US-backing-for-worl...
Hey stoned boy, that link is a full year old...
"Ambrose Evans-Pritchard 6:05PM GMT 25 Mar 2009"
You really are the dude.
An oldie but a goody though.
They will print the hell out of it toooo
Go long on ink, printing presses and cotton paper son...
Totally agree with the Alien. They're shooting for east-west wage parity.
Graham Summers
still have your reports preparing for inflation but your tune is that the Fed cannot control deflation so are you prepared for deflation or not?
I think the trick is to be prepared for any outcome at this point. The earlier post arguing that the people at the Fed know precisely what they are doing is correct. They are not dummies. So you need a position in physical PM's that you feel comfortable with given your financial circumstances which includes some gold and silver, the silver being for smaller transactions. You need at least a years supply of food. You need a means to defend you and your family or significant relationship(s). You need various sorts of equipment starting with a water purification system as you can only go about 3 days without water. Remember the rule of 3. 3 minutes breathing, 3 days water, 3 weeks food. The water and food guidelines depend upon other factors such as climate, exertion etc.
At this point you should have lots of cash in your portfolio and some stashed that is in currency for just such as an emergency as Japan is experiencing. ATM's don't work without electricity and they only contain a certain amount of cash. Cash is a sterile asset for financial institutions so they are reducing the cash levels in ATM's.
There are lots of genuine sites on the web that can help you get your act together. It is never too late to start as some preparedness is better than nothing. Remember, if you don't have it WTSHTF, you won't be able to get it.
Eagle
you're preparing for an asteroid attack not an economic meltdown with your electricity supply, water purifiers, 3 days of food etc. Shops, water, food will be in plentiful supply, biz will be super-keen for your custom in an economic contraction
i'm all for PM's but their primary role is a store of wealth which in a deflationary economy is not as good a store as cold hard cash... if you think it's inflation we face then go Gold and Silver but i think its deflation and they'll lose value like all asset classes ...good you've included some cash though
if we get a deflationary spiral down. It will destroy our economy...take down the bond market.....destroy the dollar....we will lose reserve currency status..... gold will soar, the ...dollar will become virtually worthless... the way I see it gold wins either way.....
It's not bad advice, contrary to your comment. I'm in a tornado zone so tell me why that's not good advice for me? I've been through 7 and 10 day periods without electricity and water due to ice storms as well. At least I have enough on hand to keep me secure until the mobs clear out from the retailers and supply chains are restored. Not keeping any reserve of daily consumables is pure folly. The cash on hand is also critical, but I see you agree with that.
The Marginal Utility of Debt. Our eCONomy has been successfully transitioned from classical production based economies that rely on capital formation to one of currency addiction (abuse) for those in privileged positions (primary bond dealers, TBTF banks, "critical" corporations, etc.).
The dollar will collapse after the Euro and Yen are both toast. It is a race to the bottom. The winner is the currency that get sucked under last.
After this Yen spike is done from repatriation and carry trade collapse, the Yen will collapse. First loser.
out of the box thought here...
Coming to a news ticker near you...
"Yen soars on Japan bond default rumor."
in other news, QE7 announced.
Would it trigger a round of Defaults (G7) thereby screwing everyone else... (3rd world)
I happen to be of the opinion that a Dollar collapse is, in fact, the goal of the FED. All evidence points to that being the case. It's not as if they don't know what they are doing. While we may ridicule them and call them idiots and whatnot, I think most people that participate in such banter know deep down that these are not stupid people. The result we are seeing of their policies are precisely the results they desire...and I don't think they're done yet...Not by a long shot.
By the way...that USD chart is one day old...one very important day as the USD is now steadily below 76.
Yeah!
You cant have a NWO with a super power in it.
Nor can you have a new world reserve currency while the dollar is present.
Everything that is done, is to accomplish America's demise.
The ultimate Goal of the Bernanke is to make the dollar almost equal to Zimbabwe style dollars. The difference is the Bernanke will pay off most of our debt. It's just that the dollar will be a worthless fuck to the rest of Americans who need to buy real things. Alas: the ultimate TAX on the middle class and surely the poor. Got Gold, Silver and any other precious metals. If not, it is far from to late to begin. Because the Bernanke is only at QE2, he will surely do QE3. Believe me, he will find a reason to do it. The end game will be when houses on the market are worth what the Banks have them on their books for. You know, the ones the banks had to repo. So, we have a lot more devaluation to do. The End Game Exposed. Yup.
Sure, why not. It was becoming obvious that there was no benefit to be had with interest rates on real estate. Fall back position could just as well be to trash the dollar.
I just have to say this...
BTFD bitchez!!
"There is a sucker born every day." PT Barnum
If your plan is to BTFD, you will shortly have plenty of opportunities.
Check out: www.EndofAmerica10.com