Phoenix Capital Research's blog

Both of Bernanke’s claims (that QE will help housing and spur business investment) are a crock. So what’s the REAL reason he’s frantic to kep interst rates low?

Derivatives.

According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Five banks account for 95% of this. Can you guess which five?

Growing up, I always assumed that people in a position of power or authority got there based on merit. It never crossed my mind that someone might actually be in charge of something VERY important like, say, the monetary system, and NOT know what he or she was doing.

We are officially in an inflation trade melt-up.

Everything that is an inflation hedge has exploded since late August. Gold is up 15%. Silver is up 48% (courtesy of the manipulators finally getting taken to court). Agricultural commodities are up 25%. Oil is up 20%.

Against this backdrop, stocks’ 17% rally becomes slightly less insane. That’s right, stocks are up 17% since late August. What happened in late August? The Fed announced QE lite and promised QE 2 was coming. Almost to the day of this announcement, the US Dollar rolled over and dropped some 8% (it’s down nearly 15% since June).

Let’s face it… if an alien came down from outer space and compared the US to other countries, it’d think we were just another 3rd world country that somehow managed to get bigger than the others. We’ve got the same levels of corruption, fraud, and lies, combined with the same looting, indebtedness, and crumbling infrastructure.

In plain terms, this is the beginning of the end. When an entire country’s economy is based on imaginary math, accounting gimmicks, and ideas that don’t even make sense on paper (let alone in reality) you know that economy will collapse.

Well, it’s official, Ben Bernanke has officially gone “all in” regarding currency devaluation in the name of pumping the stock market. I have to admit, even though I knew this was going to happen, I’m still in shock. After all, it’s not every day that you see a superpower collapse and lose its reserve currency status courtesy of a deranged mad man.

Regardless of your feelings on the matter, these are the cards the Fed has dealt us, so rather than devote space to critiquing our insane and corrupt Fed Chairman, I thought it better to devote today’s article to detailing what is to come as a result of the Fed’s policies.

Remember, much of the market rally from early September has hinged on the belief that the Fed will announce a large QE 2 program this Wednesday. For months the Fed leaked information that this was likely to be the case. We also received forecasts from Wall Street (specifically Morgan Stanley and Goldman Sachs) stating that QE 2 ranging from $1-4 trillion was coming in November.

In light of all of this, I am officially going on record and forecasting that the Fed will be dissolved within five years. This latest decision to reveal to the public that the Fed takes orders from Wall Street is the beginning of a major PR move in which the Fed sets the stage for its own dissolution.

The Fed and smart money see the writing on the wall, and they’re already preparing the lifeboats for themselves. They know the system is busted and will eventually fail. They’re simply trying to start positioning themselves to make it look like they knew what they were doing all along (and in a way they did, if you count “plugging a sinking ship” as “knowing what you’re doing”).

Treasuries are trading at levels not seen since the depth of the 2008 Crisis. We just had a TIPS auction close at a negative yield for the first time in history, meaning investors are willing to LOSE money just to park it with bonds that supposedly adjust for inflation (TIPS adjust based on the CPI which is nowhere near the REAL rate of inflation… see tomorrow’s essay for more on this), and US corporations have ALREADY issued $217 billion in junk bonds this year, even HIGHER than last year’s RECORD.

After all, if the Fed DOES announce such a program, then we are undoubtedly heading into outright trade wars, tariffs, and even MORE currency intervention.True, Bernanke has ultimately got his sights set on destroying the US Dollar. But with global tensions growing, he’s got to walk a fine line between saving Wall Street and pissing off the US’s biggest creditor (and the only country that still owns more US debt than the Fed).

Having rallied virtually non-stop since the beginning of September, stocks are now about to come up against MAJOR long-term resistance in the form of the 200-week moving average.

Few commentators realize what the BIG story is for the financial markets today. The BIG story is not the mortgage fraud, the corruption, or the computerized trading (although the last one dominates US stock markets’ daily action). No, the big story is the monetary actions of the massively indebted US vs. the credit cooling China.

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I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).

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Thanks to the world central banks’, particularly the US Federal Reserve’s, constant liquidity injections combined with the automation of almost ALL trading courtesy of the massive rise in high frequency trading programs (HFTPs) and other computerized trading systems, the world financial markets have entered a period of incredible correlations between asset classes.

In plain terms, everything is now moving in near perfect direct correlation or near perfect inverse correlation to everything else on an almost tick-for-tick basis.

In plain terms, corporate insiders, the folks who know their business and its prospects better than anyone are dumping shares as fast as humanly possible. They are literally putting their money where their mouths are when they say the US economy is AWFUL and business prospects are on par with those of February 2009 (before Bernanke even thought up that stupid “green shoots” nonsense).

At some point, and I cannot tell you when, the US is going to find itself facing a situation very similar to that of Greece. Indeed, if Greece’s numbers are “Crisis Worthy” investors should consider that the US’s fiscal condition is in fact AS BAD IF NOT WORSE than Greece’s.

The US is expected to run a $1.7 trillion deficit in 2010. Assuming that the GDP numbers are accurate (they’re not, but that’s an article for another time), the US economy is in the ballpark of $14 trillion. This means we’re running a deficit equal to 12.3% of GDP. That’s RIGHT next to Greece.

Then of course, you’ve got our Debt-to-GDP ratio. If you ignore unfunded liabilities like Social Security and Medicare, the US already has a Debt-to-GDP ratio of 98.1%. That’s only slightly off of Greece’s Debt-to-GDP of 112%.