Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The...Submitted by Tyler Durden on 06/12/2011 - 00:25
Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!
I think charts tell a story that allows you to disregard the lies being spewed by those in power. Below are four charts that tell the truth about our current predicament. The first is from http://www.mybudget360.com/. The austerity and debt reduction storyline being sold by the MSM is a crock. The total amount of mortgage debt outstanding peaked at $14.6 trillion in 2008. The total amount of consumer debt (credit cards, auto loans, student, boats) outstanding peaked at $2.6 trillion in 2008. Today, mortgage debt outstanding stands at $13.8 trillion, while consumer debt stands at $2.4 trillion. Therefore, total consumer debt has declined by $1 trillion in the last three years. The MSM and talking heads use this data to declare that consumers have been paying down debt. This is a complete and utter falsehood. The banks have written off more than $1 trillion, which the American taxpayer has unwittingly reimbursed them for. Consumers have not deleveraged. They have taken on more debt since 2008. GMAC (Ally Bank) is handing out 0% down 0% interest loans like candy again.
Operation Empire State Rebellion is back. Perhaps in the aftermath of the IMF "very major breach" by anonymous hackers, it is really time to make sure all external access points to FedWire and FedLine are truly safe and sound. It will be very sad if it is uncovered that this source of externally accessible portal to hundreds of billions in emergency Fed funding has been somehow compromised. Just imagine the loss of confidence in the system... Why, a global distributed attack would really stretch the Fed's 1,200-strong police force quite thin.
The Unwind Begins: Eurogroup President Juncker Redirects From A Broke Europe By Throwing US And Japan Under The Insolvency Bus: "The Debt Level...Submitted by Tyler Durden on 06/11/2011 - 14:32
The first rule of media (especially when dealing with an idiot audience that has a 7 second attention span): when all else fails, redirect. That's precisely what Eurogroup president, and certified, sanctimonious, pompous liar, Jean-Claude Juncker just did today, as it is becoming increasingly clear that nobody in Europe has any clue just what the Greek bailout #2 will look like now that the ECB and Germany are at polar opposites on how to proceed, the ECB thinks it is a rating agency and can dictate what an Event of Default is, and German bankers are willing to cede to private involvement in the bailout, but in a way that is voluntary. The problem is that these three are very much mutually exclusive. So what does Juncker go ahead and do - he redirects to highlighting the problems of the US: "The debt level of the USA is disastrous," Mr. Juncker said. "The real problem is that no one can explain well why the euro zone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the euro zone are substantially better than those of the U.S. or Japanese economy." That may well be the defining moment: by now everyone knows that the global economy is a massive pyramid scheme. Yet to this point, those in control have at least kept their mouths shut. However, when in order to explain one's insolvency, those at the very top of the control pyramid have no other choice than to point out just how broke others are (when in reality it is all one big, interconnected, "globalized" and truly insolvent Ponzi), then the unwind has begin.
Democrats Pull The Plug At Sexting The Underage: Pelosi Calls On Weiner To Resign, As InTrade Offers Free MoneySubmitted by Tyler Durden on 06/11/2011 - 14:22
After it became clear that one of the girls that soon to be former Congressman Wiener [sic] was texting is underage, not even Nancy Pelosi, who previously said it is perfectly ok in her esteemed opinion for Tony to represent the people of New York, she has now done an about face and is calling for the man heading Weinergate to resign. Expect Weiner [non sic] to tender his resignation over the next 48 hours.
Revisiting The "Ice Age" - Albert Edwards Charts America's Descent Into Japan, And The Market's Descent To S&P 400Submitted by Tyler Durden on 06/11/2011 - 13:21
Several years ago SocGen's Albert Edwards coined the term "IceAge" (here, here, here, here) to describe the long, unexciting financial and economic slog that follows any credit bust. Recently, after observing (technically it was Dylan Grice but one can be forgiven for thinking they are the same person) the most recent failure by Central Planners to prevent a mean reversion (which however will certainly not stop them from trying - there is a status quo to be preserved), Albert has dusted off the trusty charts that inevitably lead to a very sad conclusion for the central planning brigade: "The Ice Age theme is now well known. In a world of very low inflation and near deflation, equities de-rate both absolutely and relative to government bonds, which also re-rate in absolute terms. After the obscene extremes of equity valuations seen during the 2000 bubble, we have entered a long valuation bear market which should end in extreme levels of cheapness consistent with an S&P around 400. The unavoidable deep recession associated with this level (not forgetting the inevitable China bust) will drag an already ?expensive? bond market to even higher extremes. One of the key themes of our longer-term analysis is that at the end of one of these lengthy 15-year phases for the financial markets (shown below), investors believe that the current investment phase will continue indefinitely. That was not the case in 2009 and is not the case now. There is still far too much hope to call a bottom." Ergo the selling of #hope (alas the #change has now replaced fiat paper) by the oligarchs. More important than even confidence, the market continues to run on pure unbridled optimism. Take away the monetary spigot and the hope will collapse faster than artificial "record" corporate profit margins. And make no mistake: Bernanke is all too aware of this constantly reappearing and developing dynamic which threatens to end the debt-funded status quo. And the last thing he will ever allow is for it to materialize, $1000/gallon gas be damned.
June 14th is a national day of resistance against economic tyranny. We all need to do our part. The good folks at AmpedStatus.org have hosted this site: Acts of Resistance: What Are You Going To Do On June 14th to Rebel Against Economic Tyranny? Demonstrations and public actions are being planned in a number of cities.If you cannot attend the public events, then consider taking direct action against Wall Street and the "too big to fail" banks. Direct action boils down to this simple act: remove your money from their grasp. Your money fuels their exploitation, their fraud, their skimming, their lobbying and thus their sabotage of democracy. If we all take our money out of their grasp, then they will shrink or expire. If you haven't already, move your IRA and other accounts out of Wall Street and "too big to fail" banks. Move the accounts to online firms, local credit unions or local banks. Yes, there are still locally owned and controlled banks. Moving your money to them is a direct-action statement against financial tyranny.
Despite near record corporate earnings, the S&P has continued to trend lower for 6 weeks: the longest drop since 2002 as reported yesterday. But have no fear: Goldman's David Kostin summarizes the upside/downside potential of the market (1450/1210 on the S&P), and the key bullish and bearish factors that help determine the current outlook. "Discussions with clients this week focused on the risk/reward balance for US equities. Our forecasts reflect a 2:1 upside/downside return profile through year-end 2011. S&P 500 has declined by 5% from its April 29th closing high of 1364. Our year-end 2011 index target remains 1450 representing 12% upside from current levels. A downside scenario suggests an index value of approximately 1210 or roughly 6% below current levels." Also, Kostin is confident the current sell off is overdue to reverse "During the pull-backs the median length time for the market to reach bottom equaled 27 days. Six of the episodes took 20-40 days and on four occasions the decline occurred in less than two weeks. The current sell-off has lasted 41 days and counting. The historical episodes we analyzed had a median time to recover of 41 days. Recoveries during 2003-07 typically took longer than the speedy rebounds since 2009." Needless to say comparing the current centrally planned regime to any other time is futile, and we completely disagree with his assessment.
Unrestricted in its growth by any constitutionally mandated limits on its ability to create and manipulate money – the official currency now being nothing more than IOUs redeemable in nothing more tangible than coins made out of base metal alloys with inflated face values – and supported by a Supreme Court that has unequivocally demonstrated a willingness to ignore or sign off on egregious tramplings of the Constitution, the stage is set for the U.S. government to evolve into something far more dangerous on the domestic front. All it requires now is a triggering event, and it would be naïve to think that such an event won’t occur. Maybe not tomorrow, maybe not this decade – but when it inevitably does, the federal government already has all the precedents it needs to do “whatever it takes.” This absence of legal restrictions on its actions is the very foundation of fascism.
Many have asked for it, so here it is: the full list of gentlemen (and ladies) attending this year's Bilderberg conference. Some wonder if like in previous years, when following the group's 2009 and 2010 meetings in Greece and Spain, the host countries have subsequently had to deal with some sad episodes of sovereign insolvency, if 2011 host Switzerland, despite its ironclad Swiss National Bank (except for all those dollars on the balance sheet of course) may be next...
This week's truly market moving headlines, courtesy of Bloomberg (these are real)
As the superimposed chart below demonstrates, the current 6 week drop, which is the longest in the last 9 years, or since 2002, may just be the beginning. And while our prediction that 2011 is a replica of 2010 is now confirmed, the far scarier possibility is that the next comparison to 2011 is 2002 - if that year is any indication, the SPX will drop to ~1000 before rebounding: obviously at that point the Fed will have no choice but to proceed with QE3, or the downward momentum will accelerate in what may then become a repeat of October 2008, and all those predictions for an S&P 400 would promptly be validated.
The most recent CFTC Commitment of Traders report is out. As usual the most interesting data can be found in the FX spec update which does not disappoint. Just as we predicted, as the EUR surged over the past 14 days so did non-commercial net specs. The number which is through Tuesday, probably increased even as the EUR got hammered over the past 24 hours, dropping 250 pips in two days. Expect the usual piling out through the front door as specs bail once again. At that point the time to buy the EUR will come. Of the other two major pairs, the USD and the JPY, the Yen increased in long exposure while the Dollar saw the first decline in 8 weeks: just in time for the USD to jump once again.
The Fed just released the final POMO schedule which completes QE2: the total amount of bonds to be monetized will be $60 billion (at the upper end of the range) and with that the QE2 portion of monetary stimulus is over. Notably, there will be two POMOs on June 20. What is interesting, is that the Fed will continue the QE Lite portion as expected, with what appears to be a modest weekly POMO to the tune of $3.5 billion on July 6 and July 11, meant to replenish the bonds that mature and prepaid MBS. Alas, as the total notional shows, and as Zero Hedge expected, the $7 billion in two weeks is woefully inadequate to provide the Shadow QE that many have expected. It is interesting that as part of QE Lite the Fed will focus on what appears to be the 4-5 years part of the Curve.