Phoenix Capital Research's blog

Stepping back from this, you really can’t help but notice how stupid the whole “stock wealth effect” ideology is. Setting aside the fact that MOST of the gains stocks have produced since 2009 are due to US Dollar devaluation, it strikes me as odd that someone would think they were richer because their stock portfolio was up… while the cost of just about everything has ALSO gone up tremendously. For instance, since March 2009, stocks have doubled. However, oil has nearly TRIPLED in price.

Taking over the private sector also occurred in the US monetary system with the US Federal Reserve allowing Wall Street to dish their junk debts onto its balance sheet in a kind of “cash for trash” program where Wall Street sells crap no one wanted for 100 cents on the Dollar to the Fed… and then the Fed doesn’t try to get its money back… EVER. Doing this had a profound psychological impact on the financial world. By swapping US Dollars for trash assets, the Fed sent a clear signal to all of us that cash was in fact becoming trash.

If the US were a company, it’d be spending more in salaries than it makes in sales. Aside from being unprofitable, it’s also got a MASSIVE debt load. And it’s current policy of paying out more than it makes only increases this debt load… which begs the question… who’s going to pay the interest payments on the debt? Now, about those payments…More than half of all Americans (59%) receive a Government payout in one form or another. This is not a sliver of the population… it is endemic to the system.

In case you missed it, earlier this week China announced that its foreign currency reserves are excessive and that they need to return to “reasonable” levels. In politician speak, this is a clear, “we are sick of the US Dollar and will be taking steps to lower our holdings.” Remember, the US Dollar is China’s largest single holding. And China has already begun dumping Treasuries (US Debt).

The reason that the 2008 debacle happened was very simple. The derivatives market, the largest, most leveraged market in the world. Today, the notional value of the derivatives sitting on US banks’s balance sheets is in the ballpark of $234 TRILLION. That's 16 times US GDP and more than four times WORLD GDP. Of this $234 trillion, 95% is controlled by just four banks. And they are... the TBTFs.

If you think that somehow the Fed’s money pumps will keep the system afloat and stop another 2008 type even from occurring, consider that we’ve gone from $50 billion to $200 billion per month in money pumps… and we’re still seeing sharp sell-offs occur. Indeed, at some point, and I cannot say specifically when, the Fed will lose control of the system. When that happens, the Crisis that follows will make 2008 look like a PICNIC.

This leads one to ask, “what is the Fed combating now?” And it’s not just Japan (the adjusted monetary base went vertical back in January). So what is requiring $200 billion per month? Also, we need to consider just how desperate the Fed is. QE 1 saw the Fed pumping $50 billion per month into the financial system. QE 2 saw $100 billion. Now we’re at $200 billion per month.

There are TRILLIONS in liquidity sloshing around the system right now. Inflation is already guaranteed. Sure we might have another debt Crisis, but there is absolutely no question that we’re going to be seeing massive debt defaults in the coming months and years. Currencies will be taking major hits when this occurs.

So with that in mind, I continue to maintain that we’ll be major inflation in the markets before the end of 2011

However, this time around, bad news has resulted in stocks are tanking and the US Dollar is rallying hard. The implications of this are vast. Is the Fed telling its buddies (Goldman etc) behind the scenes that they won’t be engaging in QE 3? Is the tide of easy money finally turning? I doubt it. The Fed HAS to keep funneling the money into the insolvent big banks. Failing to do so will trigger a collapse in the interest rate-based derivatives market which currently stands at $180+ TRILLION in the US alone.

The financial blogosphere has since been gripped by speculation as to why Goldman did this. Is it allowing Goldman’s inhouse folks to load up on these prices on the cheap? Does Goldman really think the commodity story is over? Did God call and tell them that His work meant selling commodities in April (yes, I made that last one up). In the end, none of these explanations matter. All that matters is that Goldman has presented us with a buying opportunity in the commodity space

Instead of bemoaning Bernanke and his policies, why don’t we all do something about it? I didn’t vote for this guy. None of us did. And yet we’re all paying the price (literally) for his policies. How do we vote against him? Simple. Buy Gold and DON’T buy stocks. Don’t fall for the “stock wealth effect” BS and instead invest in something the Fed CAN’T devalue.

Bernanke and pals believe that if they can make the stock market rise, people will feel richer and will start spending money again, insuring that the US economy (which is 70% based on the consumer) will come roaring back to life. This sort of thinking is that it’s so superficial as to be laughable, especially for those claiming to have an advanced education from a top university. Indeed, the fact that the S&P 500 goes from 1,000 to 1,330 DOESN’T mean that those who own stocks are that much wealthier. This is because the nominal price of stocks (what the S&P 500 is priced at) IS NOT the same as the PURCHASING POWER of stocks.

We are entering an inflationary death spiral. YES, we might have another round of debt deflation, but the flight from the US Dollar is already beginning worldwide. Saudi Arabia has sent representatives to China and Russia to strengthen trade ties (an obvious move away from pricing Oil in Dollars). China and Russia have agreed to begin trading in their own currencies rather than Dollars. And in some emerging markets people don’t even want to accept Dollars in business transactions anymore.

We have a debt problem. And according to our elected leaders, the way to address that debt problem is to fight over some $30 billion in spending at the exact same time that unelected leaders (the Fed) are printing three times that amount (at least that we know of) to buy MORE US debt.

Congress, you need to wake up. The people who are acting as your financial advisors are lying to you about the economy and our financial system. They’re also lying to you about the effectiveness of their policies. You are supposed to represent us. You are supposed to defend us against threats both internal and external. Bernanke is lying to you and all of us. He is an internal threat to our financial wellbeing.

DO SOMETHING ABOUT IT.