US commercial bank loans and leases flat since Lehman, and yet US GDP higher by $2 trillion since the biggest bankruptcy in history. How does one reconcile this monetary and growth quandary? Simple. Enter the Fed.
Direct Challenge To Federal Reserve & Irish Central Bank Bubble Blowers: Recovery Or Parlor Tricks, Boom Or BustSubmitted by Reggie Middleton on 04/26/2013 10:08 -0400
I always wanted to debate those smart guys at the Fed, ECB and Irish Central Bank. After all, blowing up country after country is a notable accomplishment, right???!!!
- Reinhart and Rogoff: Responding to Our Critics (NYT)
- Differences with centre-right delay Italy's Letta (Reuters)
- Italy's Letta moves forward to shape government (Reuters)
- China’s leaders warn on financial risks (FT)
- Norway oil fund makes big move from bonds to stocks (FT) - worked wonders for the Bank of Israel
- Smuggling milk is the new smuggling heroin in HK: Milk Smugglers Top Heroin Courier Arrests in Hong Kong (BBG)
- RenTec's mean reversion models fail on BOJ lunacy: Yen Bets Don't Add Up for a Fund Giant (WSJ)
- From 'Fabulous Fab' to Grad Student (WSJ)
- BOJ in credibility test as divisions emerge over inflation target (Reuters)
- Boston Bombing Suspect Moved from hospital to prison (WSJ)
- Provopoulos Says ECB May Never Need to Use Bond-Buying Program (BBG) which is good because, legally, it doesn't exist
Nearly every one is talking about an ECB rate cut next week and talk of Fed tapering off QE purchases also is rife. See why neither is a done deal.
The political class set in motion the eventual obliteration of our economic system with the creation of the Federal Reserve in 1913. Placing the fate of the American people in the hands of a powerful cabal of unaccountable greedy wealthy elitist bankers was destined to lead to poverty for the many, riches for the connected crony capitalists, debasement of the currency, endless war, and ultimately the decline and fall of an empire. The 100 year downward spiral began gradually but has picked up steam in the last sixteen years, as the exponential growth model, built upon ever increasing levels of debt and an ever increasing supply of cheap oil, has proven to be unsustainable and unstable. Those in power are frantically using every tool at their disposal to convince Boobus Americanus they have everything under control and the system is operating normally. Nothing could be further from the truth.
Near multi-generational low bond yields, driven at least in part (and some think in full) by the undeniably large asset purchase program (Quantitative Easing (QE)) that the US Federal Reserve has been implementing in one form or another since the 2008 Global Financial Crisis (GFC), have pushed the question of whether or not the bond market is a bubble to the front of many people's minds. However, while the chart below of over 220 years of 10-year treasury yields shows the extraordinarily low bonds yields, they have resulted from many fundamental and rational drivers (expectations of weak economic growth and safe haven flows amid the European sovereign debt crisis) in addition to Fed purchases. So while bond prices look expensive, there is nothing particularly bubbly about the bond market today.
"You will not see economic growth until you liquidate the debt and liquidate the malinvestment out there," is the hard truth that former Congressman Ron Paul lays on Bloomberg TV in this wide-ranging interview. Paul is concerned at "the erraticness of the dollar... and its devaluation," explaining that, "people think the gold price up and down is a reflection of something wrong with gold; no, I say it is something wrong with the dollar." The topic gravitates to inflation, which Paul explains is far from missing as, "Bond prices go up. Stocks are going up. Housing prices are starting to go back up again. Education costs are going up," adding that, "CPI is not reliable." Paul is buying gold, believes "we are in as much trouble as Greece," and while fascinated by the free market nature of Bitcoin, he notes that while he doesn't fully understand it, "if I can't put it in my pocket, I have some reservations about that."
“Recovery” has become the shibboleth constantly invoked by people running things after the crisis of 2008. Unfortunately, no such recovery was underway. It was papered over by the twin Federal Reserve policies of quantitative easing and financial repression – a combination of the nation’s central bank loaning vast new amounts of money into existence at ultra-low interest rates (hardly any interest to pay back) and creating steady monetary inflation to reduce the burden of existing debt by shrinking the dollar value of the debt. The program was a racket in the sense that it was fundamentally dishonest. The presumed purpose of these shenanigans from the point of view of the Federal Reserve and the White House was to keep the financial system stable and afloat, and therefore to keep “normal” American daily life going. Unfortunately, it was based on the unreal assumption that the financial norms of, say, 2006 could be ginned back up again, and this premise was just inconsistent with the reality of a post-Peak-Cheap-Oil world. Unfortunately, there was no organized counter-view to this wishful thinking anywhere within the boundaries of the political establishment.
Socialism is a dirty word in many parts of the US, but as the FT reports, the government has turned its mortgage market into a giant nationalised enterprise on a par with China’s Red Army with over 90% of mortgages subsidized by the state and aided by so-called "progressive" or "redistributive" policies. In the UK, the government have also become entwined with the housing market, albeit in different ways. Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under 'shared equity schemes'; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); very reminiscent of supposedly communist China, where most banks are majority-owned by the state with small public floats. The question remains how can they avoid another crash if and when they withdraw support from the market? "It’s broadly accepted nowadays that China still lives under the banner of ‘communism’ despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place."
If the FBI can track down two homicidal Chechen nobodies inside of forty-eight hours from their Boston bombing caper, you kind of wonder how come the Bureau can’t detect the odor of racketeering, insider trading, and wire fraud in this month’s orchestrated smackdown of the gold futures markets, including the parts played by the Federal reserve, one or more too-big-to-fail banks, self-interested big money players such as George Soros, slumbering regulators at the Commodities Futures Trading Commission, and tractable editors at The Wall Street Journal and The New York Times... Because the smackdown organizers pulled off their operation in a panic, they probably ignored the potential further negative consequences of their stratagem, namely a worsening loss of confidence in banks generally and in the trade of abstract financial instruments in particular
In what could to grow into a class action in US courts, a Chinese woman is suing the Federal Reserve after discovering that the real value of the USD250 she put in an account in 2006 had shrunk by 30%. She claims it was the result of the Fed issuing too much money, and as The South China Morning Post reports, her son Li Zhen, the lawyer, called the lawsuit "litigation for the public good". Alleging "abuse of monopoly in issuing currency," the People's Court of Kunming has yet to rule on the litigants' demand that the Fed cease-and-desist from its quantitative easing policy. While this may seem frivolous, there are some interesting points being made that bear watching, as Li notes, since "the Fed is private institution which enjoys monopoly over the issuing of currency, US Dollar holders can sue it for printing too much money."
The world remains transfixed in the belief that the Federal Reserve can 'prime' the economic pump one more time via monetizing trillion-dollar deficits ad nauseum, inflate its balance sheet to unprecedented levels, and still successfully exit from this largesse leaving behind a 'better' place for mankind. Judging by crescendo of cognitive dysfunction, the nominal price level of US equities can dismiss current weakness since we just have to wait a little longer (and print a little moar) and the old normal growth will rise phoenix-like from the ashes of our post-debt-super-cycle world. The truth is far simpler - US equity markets are not valued on earnings (LTM, current, or forward); they are not priced off discounted dividends; there is no discounting of macro upturns; or great rotations. Since the crisis began, there is only one thing that matters, as Gluskin Sheff's David Rosenberg notes from this stunning chart, "the NYSE Market Cap, this cycle, actually went up dollar for dollar with the expansion of the Fed's pregnant balance sheet."
The state of Arizona may become the second state to use gold and silver coins as legal tender. Last week, Arizona lawmakers passed a bill that makes precious metals legal tender. Arizona is the second state after Utah to allow gold coins created by the U.S. Mint and private mints to be used as currency. Utah has had the law on the books for the past 2 years and is working on a system for using the precious metals as currency. The Arizona Senate Bill 1439 would allow the holder of gold or silver coins or bullion to pay a debt. However, the coins must be issued by the U.S. government or approved by a court, like an American Eagle Coin. Oddly the government does not require that persons or business must use or accept gold or silver as legal tender in contravention of the U.S. Constitution. The sponsor of the bill, Republican Sen. Chester Crandell, would need a final state Senate vote after approval by the House, and if passed the law would not take effect until 2014. Crandell said, "The whole thing came from constituents".
Caterpillar just can't catch a break. First, in January the firm was punk'd by a Chinese acquisition fraud, forcing the company to write off half of its Q4 earnings. This, of course, in the aftermath of the miss in both Q3 and Q4 earnings. And now we get the latest disappointing news from the firm as Q1 numbers are reported lower across the board.
- Q1 EPS $1.31, Exp $1.38; this includes a tax benefit of $87 million
- Q1 revenue: $13.2 billion, Exp. $13.8 billion
- Guides much lower, with revenue now seen at $57-61 billion, compared to $60-68 billion previously
- CAT forecasts profit per share of $7.00, compared to $7.00-9.00 previously.
- Operating cash flow of $900MM, but all of it generated from net working capital, i.e., inventory liquidation
- And when you can't spend on capex, you spend on buybacks: CAT to extend buyback through 2015
So much for that.