Putting The Fed To Shame, Presenting The Galaxy's Biggest Bubble

Tyler Durden's picture

Some delightful observations on two sets of bubbles by United-ICAP's Walter Zimmerman: one are those blown with impunity by the Federal Reserve; the other are those that put even the Greenspan-Bernanke legacy to shame, with a diameter of 50,000 light years. The latter are entertaining, but the former are far more relevant to our everyday lives. And on those, Zimmerman says the following: "Now if one studies history one finds out that the Federal Reserve was formed to prevent speculative panics, to maintain the value of the dollar, to preserve the purchasing power of the consumer, and to responsibly manage the nations money supply. Has an organization ever  strayed as far from accomplishing its goals as the Fed?" We can only hope Princeton's cosmological program is subpar (unlikely), as otherwise Bernanke may decide that 50,000 light years across is a perfectly reasonable number for a bubble. The next question, of course, is what amount of dollar bills would fill up a sphere with a radius of 25k light years...

Observations from Walter Zimmerman, United-ICAP

The Golden Age of the Speculative Bubble

We have noted before that we have all been passing through a golden age of speculative financial bubbles. Since the year 2000 the history of the financial markets has been the history of a series of bubbles. By now we are all familiar with the sequence. First the speculative bubble inflates, then the bubble bursts, and then a financial panic ensues. From 2000 the internet bubble burst. From 2005 the real estate bubble burst. From 2007 the stock market bubble burst. From 2008 the commodity bubble burst. As we write this it would appear that the bond bubble and the gold bubble are now bursting. Never before in history has there been such an extended and frenetic sequence of speculative bubbles.

This observation naturally raises a few big questions. For example, where is all the money coming from? Why are traders and investors not picking up on the destructive effect these bubbles have on preserving and creating wealth? What is it about our financial system that lends it to such prolific speculative bubble creation? How did we get here? How can anyone maintain that the path that led us all here is the path of progress? And how does the financial system move beyond this destructive frenzy?

Many blame Alan Greenspan for initiating the bubble economy. There is an excellent book that details this case. It is “Greenspan’s Bubbles” by William A. Fleckstein. If one digs a bit deeper one finds that the very structure of the Federal Reserve is a co-conspirator in all this. There is an excellent book that delves into this aspect. It is “The Mystery of Banking” by Murray Rothbard. We would just like to make a few observations before introducing the largest bubble yet found by science.

We would first note that investment banks used to make money by actually investing in America. They would connect investment capital with companies that needed capital to grow. Now investment banks make their money by trading. In perhaps the most obvious case Goldman Sachs made 69% of their income during the most recent quarter from trading. While they may be the most extreme instance, among the so-called investment banks they are also the most envied.

Part of the problem may be that this country has been living beyond its means since the 1960’s. One result is that pension funds are under-funded by trillions of dollars. Governments on all levels are technically bankrupt. In the United States we have an entire generation of baby boomers that are about to retire but somehow forgot to save any money. Complicating their efforts is the fact that one in four Americans are underwater on their mortgage. Everywhere you look one sees a great need for large amounts of fast cash. Who these days has the patience and the luxury of time to actually invest? Everyone knows that trading is a faster path to riches. But how can everyone make money trading at the same time? This is the herding dynamic that creates speculative bubbles.

Now if one studies history one finds out that the Federal Reserve was formed to prevent speculative panics, to maintain the value of the dollar, to preserve the purchasing power of the consumer, and to responsibly manage the nations money supply. Has an organization ever strayed as far from accomplishing its goals as the Fed?

Big Speculative Bubbles: Art Imitating Nature?

“No form of Nature is inferior to Art; for the arts merely imitate natural forms.” Meditations. xi. 10. Marcus Aurelius

The fields of economics and finance as they are practiced today are clearly not sciences. And we would not be overly generous to call them art forms. In both the arts and modern day finance creativity is the key. In both the arts and finance things are being done today that have never been done before. Both fields lend themselves to excess, as in both fields big productions are popular. So if the field of modern day finance is an art, and if the output of this art form is the speculative bubble, we should not be surprised to find that bubbles are common in nature.

In one of the great ironies of our age of the speculative financial bubble, science has just found what could well be one of the largest  bubbles in Nature. And just as academic economists are clue-less as to what is behind the hectic sequence of speculative financial bubbles, cosmologists and astronomers are stumped by what could have possibly created the massive bubbles just discovered. See next page.

These newly discovered gamma-ray bubbles extend out roughly 50,000 light-years or about half the diameter of our Milky Way galaxy. And the bubbles are centered at the core of the Milky Way. Thankfully the bubbles are not centered over planet Earth. These are gamma-ray bubbles and gamma rays are the most energetic form of radiation by far. They were found based on observations by Fermi - an orbiting gamma ray detector.

At this early stage scientists can only speculate as to what could have possibly produced such enormous and energetic bubbles. Alan Greenspan may well be much older than he looks, but he is neither old enough nor powerful enough to have produced bubbles this big. It does seem rather safe to suppose that scientists will have these gigantic bubbles completely figured out well before economists realize that their own ill-conceived financial policies are behind the bountiful bubble creation that began over ten years ago in year 2000 - and as yet show no signs of subsiding.

Meanwhile we have new financial bubbles bursting in air. A financial fourth of July is upon us. Our technical analysis suggests the following:

  • DX Index ( US $ ) - a decisive break out above 79.600 targets parity with the Euro-fx currency
  • Interest Rates - a decisive break out above 2.970% in the interest rate on the ten year treasury note targets an eventual 5.15%
  • S&P 500 Index - a decisive break below 1158.00 in the SPX implies a 1095.00 minimum target. Watch out below if 1095.00 breaks
  • WTI - the crude oil bulls are in big trouble on a decisive close below the 81.30 level. Peg 73.55 the minimum target from there.
  • Gold - a decisive spot close below 1340.0 in our book targets to 965.0 minimum. And watch out below if 965.0 fails to hold.

“Viewed in an artist’s illustration created by NASA, the structure looks like two luminescent, purple, egg-shaped ovals sitting
on top of one-another, intersected by the tiny-looking Milky Way. In the actual images created from layers of processed Fermi
data, the lobes are still there, but are white with flecks of red, surrounded by a sea of blue and red gamma-ray activity — the
Milky Way forming a white slash between the two ovals.”

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Mongo's picture

Once you pop... you can't stop

anony's picture

Gotta get an editor, dude.

ATG's picture

Brilliant analysis here

Art indeed imitates nature, and the gamma ray bubbles on either side of the Milky Way appear to mediate solar flares and coronal mass ejections that mediate magnetic fields, life and the markets

Gold has indeed closed below 1340, next target 965 and then look out below

As gold leads most other assets, the popping of the bubble casino economy may appear imminent

QE II = Titanic II

http://www.jubileeprosperity.com/

merehuman's picture

.bullshit, gold is going higher. Gold has millions of reasons for going up. But only the real gold, not the paper.And if it did drop, none of us who have any will give it up for paper.

So...up your bucket!

Thomas's picture

I don't think commodities hit bubble territory either. They did, however, get ahead of themselves. As to gold, I assume a bubble probably needs mania affiliated with it, and gold has certainly not reached mania stage. I still can't name a single person that I see on a daily basis who buys gold. Not a one. I don't either only because I am about 55% precious metals now. (Gold bug since 1999.)

Triggernometry's picture

That $3.16485x10^54 to fill that bubble.

Piece of cake. Though even if $1T were printed every second since the beginning of the Universe, we still wouldn't have put a dent($4.09968x10^29 assuming 13bn years and ingnoring extra days in leap years).

Silver, bitchez!!

Shameful's picture

That's just it printing is not the problem.  With the right gear Ben could pop out $1.189731495357231765085759326628007 × 10^4932 dollars, no problem.  That might even be high enough to sate his devaluation thirst...maybe...probably have to move up from $100s though running into a cotton problem...

Shameful's picture

Dammit!  I can almost see Zimbabwe Ben rolling up his sleeves "Ok Universe!  You want to throw down the gauntlet?  Your on!"

Sudden Debt's picture

Somebody better warn the WWF and Greenpeace because when Benny B. figures out where he'll has to get his pulp from to print it all there won't be a three left when he's done.

metastar's picture

Yes, matter in the universe must be finite. Dollars in the money supply can be infinite. But then again, even infinity has a cardinal value to which I am sure the FED is looking to inflate.

For more fun FED math facts see:

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

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

 

Fraud-Esq's picture

Is there more inflationary pressure now than in 2006 or just in different segments? Fractured economy. 

If you have $300,000 cash, you rent, and you want to buy a new home in 2011, keeping $300,000 in CASH might yield you10-15% (without risk) toward that asset you're targeting. That's a good yield! I have to exclude PM and all other investments from this simple equation only to keep it clean. So, from that point of view, deflation in housing is your friend.   

The inflation/deflation or biflation scenarios point each investor into a different direction depending on what you want/need. 

 

traderjoe's picture

"Now if one studies history one finds out that the Federal Reserve was formed to prevent speculative panics, to maintain the value of the dollar, to preserve the purchasing power of the consumer, and to responsibly manage the nations money supply. Has an organization ever  strayed as far from accomplishing its goals as the Fed?"

- Uh, really? No actually the Fed was formed to create panics, debase the value of the dollar, steal the purchasing power/wealth of the consumer, and responsibly manage and ride shotgun for the affairs of its owners - the private banks. 

Amazing that anyone with a modicum of intelligence, skepticism, and willingness to be open to the Truth, still believes the Fed is attempting to act for the benefit of the general public. 

Patrick Bateman's picture

Absolutely. 2012? Fuck that, Dec. 23rd 2013, 100 year anniversary for the destruction of the dollar. What new fiat currency will we print now? Just another that will fail, eventually. Gold, silver............... Bitchez.

RobotTrader's picture

Clearly, the "Commodity Wildebeests" who were banking on a myriad number of phony theories:

"QE to Infinity"

"Peak Oil"

"We Are Running Out of Food!"


They are all getting margined called right now....

Takingbets's picture

Hey robo, can you explain why the futures markets always open lower than the market closes? (see link below)

Thanks for any light shed upon this dilemma of mine. :-)

http://www.bloomberg.com/markets/stocks/futures/

 

Burnbright's picture

1% moves in a day is noise and should be rather common by now. I find your antics to be comical because of how clueless you truly are. Expect greater volatility in the future before things break down.

Gone Full Retard's picture

"margins calls right nows"

There I fixed it 4 U?

DarkMath's picture

"QE to Infinity"

So you don't believe there will be another QE? Oh my Robot, you are naive. Let's put it this way, if there isn't another QE (to bail out the states and support the Bond market) then you might as well start hunting wildabeasts for food because it will get ugly here. Without another QE the stock market will promplty sink to about Dow 2,000. Your nemisis Robert Prechter will be proven correct and you don't want that to happen.

So which is it: QE to Infinity or getting on your knees before Robert Prechter? You can't have it both ways Robot.

VK's picture

WTF Robo?

In the short term, finance trumps energy and ecology simply because the later are slower moving systems. In the longer run, we have a fucking energy crisis. Every single oil field in the world increases production, reaches a peak and then declines. EVERY SINGLE ONE and we have more than a CENTURY of data. The planet is a finite sphere. You can only squeeze so much orange out of an orange juice, same with oil. Just because you're ignorant about geophysics and the laws of thermodynamics doesn't mean they're wrong just because you don't happen to agree with math, physics and logic. World oil production has peaked and will decline, taking down industrial civilization with it.

Patrick Bateman's picture

Agreed. Sounds to me like someone who thinks "peak oil" means running out of oil. That's not even what peak oil is about. When you have corporations looking for a profit, who in the fuck do you think is going to drill a well of heavy crude to not make any money? NOBODY. The oil is there, the profit is not, hence peak oil.

Quantum Nucleonics's picture

Unseen in this photo are the 20 foot 2000 pound Nile crocodiles snatching and dismembering the occassional, unlucky wildebeest.

Dollar Bill Hiccup's picture

To infinity and beyond ?

Double down's picture

Nice picture, pretty crapy "analysis".  If you cannot contribute anything new do not create noise.

Chartist's picture

Well, there's 1.3 billion chinese and 1.3 billion indians and they all want what we want:  color TV with 300 channels, a house with two cars in the garage.

Xedus129's picture

2 cars?  That's so 1990's.

whisperin's picture

Okay, so your sayin God was an economist?

 

EDIT: Uh, with a Phd. of course!

tony bonn's picture

"First the speculative bubble inflates, then the bubble bursts, and then a financial panic ensues." and then the taxpayer is fucked into bailing out the miscreants.

txapela's picture

"Gold - a decisive spot close below 1340.0 in our book targets to 965.0 minimum. And watch out below if 965.0 fails to hold."

 

what does that mean: "And watch out below if 965.0 fails to hold."?

 

Are they expecting Gold to go down, and nto up?

Citxmech's picture

Yeah - I noticed that part and almost called bullshit - but I s'pose if the Dollar and the Euro crossed we could see some real turmoil in the commodities markets - or if the Dow/S&P crashed, but that would just be another, perhaps last, buying point before the Fed quickly announced QEIII and flushed the FRN down the crapper for good. 

Personally, I'd be amazed if Au fell below $1200/oz for any length of time, no matter what happens. 

Just not seeing it with the POO either - especially not going into winter.

unky's picture

Lets just assume all Euro denominated assets are wiped out because of a default in the Euro-Area. Wouldnt that mean, that there is less paper currency in circulation and gold priced in dollars indeed would go down?

Xedus129's picture

Price in FRN's is irrelevant IMO.  If the price drops that low I expect physical supply to vanish..  Especially with silver.

Sespian's picture

Agreed.  Long term, it's about value not price.  The majority of silver mined is a by-product of mining other industrial metals, as industry demand in general goes down, so does the supply of silver.  Scarcity is maintained.

Bastiat's picture

"It does seem rather safe to suppose that scientists will have these gigantic bubbles completely figured out well before economists realize that their own ill-conceived financial policies"

Maybe not -- it seems astromers are caught in their own dsyfunctional paradigms.  That's why they are daily "surprised" at what they observe, just like economists.  They are surprised because their expectations are determined by their inadequate models.   Just as with economics, the institution of astronomy defends its credibility with blind zeal--there are a lot of careers and lots of grant money at stake.  If you are at all a science buff check this out sometime:  http://www.amazon.com/Electric-Sky-Donald-Scott/dp/0977285111/ref=pd_sim_b_2

A taste:  No black hole as ever been observed nor can one be by definition.  What are observed are highly energetic events.  Black holes are a theotical construct posited to make a "gravity only" model explain these enormous energy concentrations.  Fact:  electro-magnetism is 10^38 times more powerful than gravity.  But of course, EVERYONE knows about black holes, right?

Great stuff, if you have an interest.

 

 

anony's picture

Sports guy chest bump~~~ )(

Implicit simplicit's picture

Interesting. It shut me off after 3 chapters.

At least the debate about dark matter, electric plasma and black holes doesn't affect the economy like the science- not, of economics.

StychoKiller's picture

Astronomers, like most Scientists, learn from wrong theories and move on -- Economists, not so much!

Bastiat's picture

Science should work that way but when careers become invested in wrong theories they become orthodoxy and changes are more revolutionary than evolutionary. The more fundamental the wrong theory, the more resistance.   Astronomy is all about grant money.  "Deviant" ideas are not tolerated or discussed--Phd dissertations are "advised" in an orthodox direction--and that's where they go if the candidate wants to be employed.

Fraud-Esq's picture

"Wolf argues that central banks “can surely lean against the wind” even if they cannot eliminate bubbles. I know of no instance in which such a policy has been successful. For reasons I have outlined elsewhere, (American Economic Association presentation, January 2004) I doubt that it is possible. If it turns out it is feasible, I would become a strong supporter of “leaning against the wind.” - Lying Greenspan 

sbenard's picture

Once we realize that the REAL mission of the Fed isn't the one that it shouldd be, as stated by Mr. Zimmerman, and that its REAL mission is to socialize the gross errors of the TBTF banks, then we must admit that the Fed has been immensely successful! It has been all too successful. And that's why we're all going to crash and burn!

Fraud-Esq's picture

"Aside from far greater efforts to ferret out fraud (a long time concern of mine).." - A. Greenspan

Fraud-Esq's picture

"Many blame Alan Greenspan for initiating the bubble economy. There is an excellent book that details this case. It is “Greenspan’s Bubbles” by William A. Fleckstein. If one digs a bit deeper one finds that the very structure of the Federal Reserve is a co-conspirator in all this. There is an excellent book that delves into this aspect."

  • You don't need a book, it's an obvious conflict of interest. 
  • Of course the Fed was a co-conspirator, Greenspan couldn't have done it without the Fed. He'd be a jazz musician perhaps. But, he could have also NOT DONE IT with it. Can't miss that logic. That would assume FULL independence from the banking industry, of which there is little to none. So, it's unlikely because it's corrupt.
  • People talk about "independence" today, but ONLY in regards to the Fed's relationship with the government. That makes me belly laugh. Short of eliminating the FED, government interference may be our only chance. Remember Jackson.  

plocequ1's picture

Bones McCoy: Dammit Jim!! This defies logic. Mr Spock, What do you make of this Galactic bubble?

Mr Spock: Astounding Bones. This is even more illogical than that flying NBC Volkswagon Bus we saw back in the SNL days

Quinvarius's picture

and another sucker bets the dollar is not a bubble but gold is

ATG's picture

Time will always tell

Quinvarius's picture

and another sucker bets the dollar is not a bubble but gold is

ATG's picture

Tell will always time