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Stock World Weekly: Convergence of Trouble
Here's the new Stock World Weekly: Convergence of Trouble
Excerpt:
Lee Adler of The Wall Street Examiner wrote last week, “The market sailed through a week of light Treasury supply with reduced POMO support. A big Treasury paydown this week put extra cash in dealer trading accounts and it did exactly what we expected it to. S&P threw a little glitch into things on Monday by putting the US on a negative watch. They probably just had a big client with a huge buy order outstanding. A little negative news and Voila! Done!
Next week, Lee thinks, will be a little more interesting. “POMO will be insufficient to absorb $52 billion in new supply. With that much paper to sell, the government will want to see yields lower. So be on the lookout for a 3 AM stock futures selloff in the pre market probably Tuesday and/or Wednesday. There’s nothing like a little stock market liquidation to get a buying panic going in Treasuries. If that doesn’t happen, then something will need to take a hit around May 2. That’s settlement day for $45 billion in new notes. We would need to keep an eye on the technicals for clues to which market would bear the brunt of that if there’s no pre auction liquidation of stocks.” (The Wall Street Examiner, subscription required)
Quantitative easing (QE2) is scheduled to expire at the end of June. In a recent interview with Jon Hilsenrath of the Wall Street Journal, Fed Chairman Ben Bernanke indicated that QE will not be pursued once the current program runs its course. In an interview with John Nyaradi of Wall Street Sector Selector, Phil pointed out that this is not actually the case. “QE2 isn’t going to end. This is a misnomer about QE2 because what’s going to end is the new funding. About 50% of what’s going in from the Fed now is rollover money... (The Fed) is buying 85% of the Treasury notes. They can’t stop. How could they stop? Who’s going to buy?”
When QE2 was announced, the budget for the program was set at $600Bn plus additional funds made available by reinvesting principal payments from agency debt and agency mortgage-backed securities. Those additional funds boosted the total budget for QE2 to somewhere between $850Bn to $900Bn. In other words, the Fed had between $250Bn and $300Bn available to use for buying Treasuries during QE2, funds made available from the performance of assets it owned at that time. Imagine how much more could be available to the Fed once it has completed purchasing another $850Bn to $900Bn worth of assets by the end of June?
So where does this end? In Phil’s opinion, it will eventually end in hyperinflation. “There’s no end game to what we’re doing other than hyperinflation because we have to pay off our debt ultimately. Look at how ridiculous it is. We owe $15 trillion. And we go another $1.5 trillion into debt every year.” There’s no chance to pay off a $15 trillion dollar debt by adding another $1.5 trillion in debt each year. At this rate, in ten years, we’ll owe $30 trillion.
According to Phil, “There’s no realistic way to pay off this debt other than gross inflation. That means we need inflation, and it has to be hyperinflation because the inflation has to occur faster than our debts are mounting.” So we have to grow the GDP so fast through inflation that it dwarfs the rising interest rates on the debt that we have. Then, with devalued Dollars, “we may be able to start making some payments.” (Phil Davis Discusses Options and Today’s Markets)
Jesse, at Jesse’s Cafe Americain argues that many years of stagflation is a likely outcome of the Fed’s 'managed inflation' policy. “The problem or twist this time around comes when the monetary stimulus does not increase jobs and the median wages, because of some inherent and unreformed tendency in the economy to focus money creation and its benefits to a narrow portion of the populace. The result of this is stagflation which although not indefinitely sustainable can be maintained for decades.” Whatever the flationary route, Jesse concludes, “the reissue of the dollar with a few zeros gone is inevitable.”
This week’s newsletter trade idea comes from Pharmboy,... read on.
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This week, stocks start to tank.
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&sta...
Interestingly, unrelated, it still fulfills the old advice: Sell in May and go away.
I may add, return in April 2012 for a short upswing from level 6000-7000.
Or you know, they'll just put a 90% tax on capital... so all people who have gold/silver, if they sell it have to give 90% of it's value to the gov.
Measured by silver - hyperinflation is already here. MIT shutting down the billion prices output is like EPA shutting down Rad-Net once the reactor blows. The thing has happened. It's a question of how long the blinders can be kept on.
I believe it's going to be apparent right now, not next year, not next month, in the next 72 hours. Gold just passed 1516 and is accelerating. Silver will be at 50 in minutes at the current rate.
Slow down and take a breath...you're hyperventilating!!
Hyperinflation is defined to start at 50% per month and has gone as high as 200% per day in Hungary (1946), 100% per day in Zimbabwe (2008) and 65% per day in Yugoslavia (1994). Weimar Germany only went as high as 20% per day (32,400% in a month) back in 1923.
Silver is a l-o-o-o-n-g way from showing hyperinflation in the dollar at this point. Wait until next year.
Hyperinflation
From Wikipedia, the free encyclopedia Jump to: navigation, search For lungs filling with excessive air, see Hyperaeration.Sweeping up the banknotes from the street after the Hungarian peng? was replaced in 1946
In economics, hyperinflation is inflation that is very high or "out of control". While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate.[1] Definitions used vary from one provided by the International Accounting Standards Board, which describes it as "a cumulative inflation rate over three years approaching 100% (26% per annum compounded for three years in a row)", to Cagan's (1956) "inflation exceeding 50% a month." [2] As a rule of thumb, normal monthly and annual low inflation and deflation are reported per month, while under hyperinflation the general price level could rise by 5 or 10% or even much more every day.
It's like watching a disaster... oh - it actually is a disaster... ?
Somebody should tell someone...
http://www.youtube.com/watch?v=_B0CyOAO8y0
Get out of the USD TONIGHT!
markets are crispy green. Looting going on. Nothing to see here, everything is fine. Enjoy the Paris Hilton show and American Idol. Oil up. Silver Up, Gold up and everything is fucking peachy. Unemployment who cares, foreclosures who cares, save the banks, Save them , I say. LOL, what a fucked up systems and model.
After the next major market sell-off, I've always envisioned that they'd "help the little guy" by forcing some percentage of IRA/401K assets to be invested in US Treasuries to help "limit volatility" and provide "a guaranteed, low risk way to help Americans plan for retirement."
You know you can see it happening. Market crashes. The unwashed masses demand a solution. Someone gets scapegoated. Government promises to help prevent this disaster in the future by ensuring citizens have a percentage of their retirement income in the "safest, most liquid markets in the world." Bill Gross front runs it...
Three years later, those "guaranteed returns" don't buy milk...
You know. Typical government "helping out."
It's a plausible notion, but it's not so horrible.
Most folks' 401Ks are nothing but subsidy for private business, anyway. It's been going on for at least a decade, more likely two.
But what percentage of the population every manages to put enough into a 401K to be relevant? It's the "educated" and high-earning "middle-class" population that is really harmed by another looting of their investements.
And quite frankly, those folks (as a group) need the wakeup call if we want any kind of beneficial change in the USA. Most of these folks have not yet realized that it's always been a scam to fuck them over, and if it takes something as obvious as the Feds literally seizing funds from a paycheck, so be it.
First, the government taking and forcing an investment choice for funds pulled from my paycheck is precisely what I define as 'horrible.' And in an environment where they are demonstrably creating inflation its out-and-out theft. Not much different than the WWII war bonds, which lost about half their value in less than a decade.
I, and a lot of other people I know with 401k opportunities put a reasonable amount in their 401k, esp. if their companies match. The match is free money. You'd be dumb not to do it.
And regard to waking up: seems like the 'tea party' movement has a lot of middle-class people involved who are very aware of the consequences of current government policy. They are the goose that is going to get plucked...
1. Never match a 401k unless you can pull it out at anytime in the near future without losing the match. There are many powerful people looking to absorb it into the government coffers in one way or another.
2. The Tea Party was long hijacked before the 2010 election and is now very misinformed.
Whom do you see as the "Scooter Libby" of this fiasco? Somebody is gonna have to go down -- so he can be pardoned later, of course.
I HAVE AN IMPORTANT QUESTION that I have not seen anyone ask/answer yet....
What happens after next week, when the treasury hits the debt ceiling limit?
If new issuance stops, but QE2 continues, Ben would need to be buying, for the first time, from the secondary market (not from the sham secondary market 6 days after the primary deals purchased in the primary market)...
Won't that cause bond yields to crash? All that newly printed money paid to current bond-holders will then flow to oil, gold, silver, wheat, etc.?
THEN once congress passes the new debt ceiling, treasury will need to issue all the bonds that have been funding the government "fumes" right? So, we will have a schedule of bond auctions that will be unprecidented in magnitude as they play "catch-up" and, as it turns out, just as QE2 primary is ending. Won't that send prices through the floor and yields through the roof? That should crash the stock market as money flows into these high-yields and no Ben to protect.
Those are my thoughts. I'd love to see an article discussing the subject. It feels like we are in a boat, and we are all about to rush to one side, then the other, and then the boat will tip. I think this is the end of the game... Probably an important question to ask and answer, and probably will make for great investing opportunities, for those so inclined...
I have strong suspicions that Mr. Geithner has already worked with the Fed to fill up the government's checking account. If he's smart (and he is) he knows the political process will mess it up, so if I were him I'd issue new Treasuries to raise 'cash' and make sure he can pay the bills for an extended period of time. This would account for the acceleration of the 'debt of late.
If Ben bought treasury debt on the open market it doesn't help the Treasury's checkbook problem ($ in the govt checkbook).
QE1 and QE2 - both increased interest rates. Stopping QE1 created a stock market correction and bond rally, and I expect the same thing to happen with QE2 ending.
The "risk off" QE2 exit would likely move $ from stocks to US bonds (corporates & PMs and Swiss Francs?) - but should generate more Treasury buyers in the short run. That'd move yields down. Further ending QE2, if even temporarily, could also bring commodity price correction.
Longer term I think the Fed has to monetize to keep up with government's insane spending and the growing needs of core social programs.
Ben and Tim will cook the books and delay for weeks.
They won't hit the debt ceiling limit - it will be raised indefinitely.
The FED can do what they want, they don't need to ask permission.
The only losers in the current equation are households not in on the ponzi scheme.
Investment opportunities? Short U.S.A., long Asia and South America (and PM's).
Well, according to Tyler, they are hitting the debt ceiling in the next auction this week. I am sure that they will be able to keep the government going, per Timmy's comments that he can basically work some black magic (read, stop paying some bills) to keep the government operating until July, but all that means is that the treasury will not be doing auctions.
Thus, my comment still stands. I agree that the ceiling will be raised, but not before treasury auctions are forced to stop.
Brian one of two things will happen IMO.
1. They go above the ceiling anyway (since when does the government follow the laws anyway?) Once it's done, no one will do anything to stop it and they will act politically outraged.
2. Obama signs an executive order.
Congress does an "emergency extention" of sorts?
Gas at $5 would create much more fear and uncertainty; at $6, people will spend only on essentials; forget any uptick in home sales; luxuries and new auto sales will tank. At $7 there will be massive grumbling, blood on the streets, and a big spike in crime; gun and ammo sales will skyrocket.
I don't wish any of this to happen, but it may be inevitable. Best to start preparing now folks. Just in case.
With my crotch-rocket, $5 a gallon gas builds animosity towards my good decision. $6 a gallon gas makes me a target and $7 a gallon makes my commute to the beach almost as enjoyable as getting drunk or getting ass!
Twice in the last month when the van was out of the garage overnight, someone used their Oklahoma credit card (syphon) to drain the gas, but on the second try they punctured the rubber hose connector, leaving gas on the asphalt and a $20 repair job. $5-6 higher WTI and 15c more per gallon and the full tank will be worth $100, and needy people will get even bolder.
dude- at 5 things stop. all part of the plan, don'tcha' know. - Ned
Nonsense! It has gone from $1.60 to $4+ in 2 years of Obomber's reign, yet he is still likely to get re-elected!
It's over $6/gal in Australia and closer to $10/gal in parts of Europe and we don't see any protests or mass dumping of vehicles there.
The frogs will tolerate very hot water in the pot if the temperature is slowly raised.
Walking by SBUX close to where i live, it looks packed. Must be an evening of gay hangout and Zima Drinkers. So five bucks for coffee. Maybe they need to redo guns vs butter model and include coffee vs gas chart.
I look for this to maybe the catalyst for seizures of 401k's, and IRA's.
They can fund for a while with 12 Trillion.
Does that mean no more rude Jersey shore Italians driving Escalades? If so, take away.
Agreed.
"They wouldn't" some say.
Yeah sure; like they wouldn't close the banks and confiscate privately held gold? (1932).
Maybe not outright confiscation; however, it could easily go something like "withdrawals beyond 2% per year are not allowed", etc.
Don't think they won't bend you over.
Do you think the seniors are going to riot in their walkers?
No...all the powers that be need to do is placate the idiot youth with bread and circuses.
I wouldn't count the youth out they have been attacking the banks with bottles . Chase bank in Seattle , Olympia , North Carolina they see the injustice passed on to them I just hope they have the right solution.
fast food and pop culture
Dos:
probably, but not as long as the House has an R majority. but, otoh, here's the discussion. No problem here !
http://www.factcheck.org/askfactcheck/are_congressional_democrats_talkin...
- Ned
BS Ned, I read the important parts of a bill looking for sponsers in late 2009. They are indirectly trying to seize retirement funds. Republicans will sign on and say they had no choice (ie. the Patriot Act and TARP.)
The government needs the breathing room and at a 3% annual return and 50% death tax (combined with future medical rationing killing people off faster as the healthcare industry has nothing stopping it from charging whatever it wants) they are doing real well with this as another massive tax to keep the US afloat.
Inflation is self-limiting. It is always followed by deflation. There has been plenty of inflation since 2008 as money supplies around the world surged to prop up failing institutions. Now we will see the other side of the coin.
Shh. No deflationary logic in the echo chamber.
Cue the evidence of Zimbabwe. (Militarily, economically, industrially and politically, we're an exact match you know.) Throw in a few "bitchez", and begin the junking. There will be no discussion of the coming deflationary collapse.
Curiously, ZH'ers tend to love this quote -- which contains exactly the scenario currently unfolding:
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered" -- Thomas Jefferson
(Please note the sequence of events)
Without a wage-price spiral, inflation will lead to increasing input costs and ultimately margin-collapse. It is why inflations in industrialized economies *are* frequently self-limiting.
Do you see wages going up? No. Neither do I. So put away your hyperinflation arguments until such time.
Just because you can't picture rising wages, doesn't mean hyperinflation hasn't (doesn't) exist.
It does exist, it's just masked at this point.
16 oz. cans are reduced to 14.1 oz. cans and the prices rise above the old 16 oz. can.
MCD cuts out a slice of cheese in it's $1 double cheeze burger.
Wendy's delete's the frosty from the $.99 menu.
Wages are a lagging indicator in hyperinflation, especially when you couple it with food stamps, public housing, etc. Over half of the US receives government benefits and less than half are employed! History rhymes.
Release the bias your ego has developed and try to look at history again. I've been there, done that. It was hard for me to believe silver would go above $23 an ounce and where are we now? Many commodities are up double digits (hyperinflation) year over year and in many cases month over month.
BRICS is working towards abandoning the dollar. They know their going to take a hit
http://www.zerohedge.com/article/china-proposes-cut-two-thirds-its-3-trillion-usd-holdings
so they are all nearly offically looking for their exit visas. China is only the beginning and the biggest country to start bailing out of this mess.
BRICS is over 2/3's of the world's population! With all that cheap labor leaving and our destroyed infrstructure in manufacturing you have to ask:
How can we recover without hyperinflation? Who will supply our Walmart goods? Where is the educated manufacturing workforce?
I got a hint, they aren't white and under 50. They're not black and they soon won't be hard working immigrants (they will go home.)
I have the benefit of working with all classes rich, middle class, poor, immigrants, whites and blacks.
Whites and blacks usually sit on their butts and pout about not being paid enough and don't work hard like immigrants do. There are always rare exceptions to the rule, but again they are rare.
The banks are literally sucking us dry and are relocating as SHTF as they are international citizens now. Don't believe me? Where is DPZ growing? KFC? MCD? WMT? F? GM? C? JPM? CAT? GE? INTC?
That's right, not here!
The US is a rapidly deteriorating consumer base. That's why gold and silver are being bought in droves by India and China. Precious metals is something that the US can't confiscate from them unless the US goes after the metals (and of course oil) as they are with Lybia.
Some people are waking up and are taking minimum wage. They have no choice and will have no choice for years. $30k, $40k, $60k were the good times. $20k while putting in extra hours or that second job is today's times. People are stuck working more for less with or without job experience.
That is simply due to the fact that "deflationary" and "logic" are mutually exclusive terms in the modern, post-gold-standard, purely fiat monetary world. Hundreds of inflations, currency collapses and hyperinflations in the last hundred years, and nary a deflation to be found among them --- does that NOT tell you something?
Did you just say that there are no examples of deflations in the last hundred years?
What do you believe the natural state of all economies is? To hyperinflate?
The prime interest rate in America has been as high as 21.5%.
Why do you suppose that is? What forces drove rates that high? Why didn't the Federal Reserve just lower them?
Only one of us fails to ask the important questions.
Popo, can you please answer the question that you asked? I am curious myself. thanks.
No, there have been NONE, outside of the period from 1929 to 1933 in the USA, ending with Roosevelt's unilateral ending of the US gold standard. And no, Japan post-1989 is NOT an example of "deflation", as their monetary supply and consumer prices rose EVERY year after that date, with the one exception of one single year in which they were essentially flat.
M2
Gold
Silver
Platinum
Palladium
Oil
Wheat
Cotton
Rice
Soybeans
Sugar
Beef
Pork
Gasoline
Oats
Lumber
Coconut Oil
Palm Oil
Wool
Lead
Nickel
Tin
Copper
Chromium
Aluminum
Cocao
Poultry
Barley
Rice
Natural Gas
Bananas
Oranges
Sunflower Oil
Hides
Rubber
Rock Phosphate
Steel
Thank you for the list of raw materials (ie: input costs).
Coupled with stagnant wages, what will a rise in manufacturing input costs do to margins?
You know, like every other historically ignorant deflationist, you categorically refuse to acknowledge the simple and fundamental fact that every, EVERY government that has engaged in chronic overspending and gone into massive and clearly unsustainable debt has chosen, or has been forced into, one and ONLY one eventual outcome: currency depreciation, if not outright currency collapse (i.e., hyperinflation).
You can dance around that fact, and posit all the "this time it's different" academic and ivory-tower hypothetical deflationary scenarios a la Ben Bernanke, but in the end I will put my faith in history repeating itself, or at least following the well-worn path taken by all other governments in the position into which ours has put itself, over your wild and historically unproven, unknown and unsupported theories.
I am deeply aware of history, and of historic inflationary/hyper-inflationary events.
It is you that is looking at the small picture. You see only the United States. You fail to incorporate the deeply strained state of other economies. You dismiss the fact that you are talking about the greatest military power in history as if it is some inconsequential detail. You dismiss the reality that America controls a great deal of the world's energy resources. You point to rising costs of raw materials without the slightest understanding of the manufacturing supply-chain and how that is inherently deflationary. You fail to note that wages are stagnant and/or falling which should be deeply troubling to any inflationist. You apparently do not notice that M2 is *not* rising sharply and is barely keeping up with the still current deleveraging in the US. And you keep harping on historic examples which bear little in common with the geopolitical / industrial profile of the USA. You're examples are straight up first year Economics. You proudly tout your one-paragraph definition of inflation as if you're in possession of some arcane academic insight and you refuse to directly address anything I write. Instead you fall back on name-calling and the same tired examples. Good luck. I hope you're not investing on your thesis for the long term.
You are worthless as a debater, do you know that?
All you have to bolster your horribly weak and tenous case for a never-before-seen fiat currency deflation (insulting to even have to consider such an absurd argument!) is some vague American exceptionalism and irrelevant military jingoism. You say that you are aware of history, and yet you blindly refute or brush aside EVERY disastrous example of EXACTLY the same course the US government is following, and blindly asserting that "this time it's different!" You bring up irrelevant minutia and wholesale obfuscation to ignorantly assert the likelihood of a fiscal and monetary outcome that is exactly contrary to ALL of monetary history, and expect us to believe you. Sorry, no.
You deflationists are woefully misguided if not outright evil, because you maliciously keep attempting to drive investors and savers into taking precisely the WRONG measures to protect their savings and wealth, and I can only wonder what malevolent agenda is behind such a foul and despicable campaign.
I vote for Akak on this debate, gentlemen. Thank for the exchange. Always enlightening and learn a lot. Nice job to you both.
I have a question that I have not been able to figure out. Why did it take so long to rid the inflation of the 1970's? And why was it necessary for Volker to raise interest rates into the teens to do it? Or was that just an effect?
SoulTrain, I cannot answer every aspect of your question(s), and I suspect that such a seemingly simple set of questions could keep a panel of economic experts heatedly debating for many hours! But as for why interest rates were raised so high, or had to be raised so high (i.e., the high teens), one has to point out that in order to stamp out, or more precisely, tamp down, the inflation occurring in the early 1980s, interest rates had to be driven above the rate of actual inflation in order to attempt to drive investors back into the dollar --- in other words, what was needed (and what we do NOT have today) were positive real interest rates, rates greater than the true rate of inflation. And this was done, with brutal impacts on the economy, as I well remember as a resident of the Detroit area at the time.
Without such interest rate hikes, however, it is generally acknowledged that the US was facing very possible runaway inflation and a potential collapse of the US dollar. One can in fact look upon the period as an aborted currency collapse. But it is important and illustrative to note, however, that such actions (hiking interest rates to significantly positive values) are not just exceedingly unlikely today, but for all practical purposes impossible.
> " But it is important and illustrative to note, however, that such actions (hiking interest rates to significantly positive values) are not just exceedingly unlikely today, but for all practical purposes impossible."
They are not only possible. They are highly likely. ...and right around the corner.
Watch for the oil price spike. It will mark the beginning of the next rate cycle.