Well, if you take the US Supreme Court and representatives of the Federal Reserve System at their own words, the case is pretty clear: the member banks of the Federal Reserve System are private corporations / banks.
This is a big deal. On the heels of our pointing out the surge in Treasury fails (following extensive detailing of the market's massive collateral shortage at the hands of the unmerciful Fed's buying programs), various 'strategists' wrote thinly-veiled attempts to calm market concerns that the repo market (the glue that holds risk assets together) was FUBAR. Even the Fed itself sent missives opining that their cunning Reverse-Repo facility would solve the problems and everyone should go back to the important business of BTFATHing... They are wrong - all of them - as yet again the Fed shows its ignorance of how the world works (just as it did in 2007/8 with the same shadow markets). As JPMorgan warns (not some tin-foil-hat-wearing blogger with an ax to grind) "the Fed’s reverse repo facility does little to alleviate the UST scarcity induced by the Federal Reserves’ QE programs coupled with a declining government deficit." The end result, they note, is "higher susceptibility of the repo market to collateral shortages" and thus dramatically higher financial fragility - the opposite of what the Fed 'hopes' for.
Occam’s razor is a principle that states that among various hypotheses that might be used to explain a set of observations, the hypothesis – consistent with the evidence – that relies on the smallest number of assumptions is generally preferred. Essentially, the razor shaves away what is unnecessary and retains the most compact explanation that is consistent with the data. When we observe the increasingly tortured arguments that “this time is different,” we see investors discarding straightforward explanations that are fully consistent with the evidence and opting instead for the aliens-from-Xenon theory. nothing even in recent market cycles provides any support to the assumption of permanently elevated valuations. The only support for it is the desire of investors to avoid contemplating outcomes the same as the market suffered the last two times around. “This time is different” requires a lot of counterfactual assumptions. Occam’s razor would suggest a nice shave.
This is it! The holy grail of forecasting, Jeffrey Kleintop has discovered it. You'll never have to worry about actual earnings reports, a massive bubble in junk debt, the sluggishness of the economy, new record levels in sentiment measures and margin debt, record low mutual fund cash reserves, the pace of money supply growth, or anything else again. Just watch the yield curve! Unfortunately, as we showed here in the US, this advice could turn out to be extremely dangerous for one's financial health - and has been across many nations throughout time. People remain desperate for excuses as to why the latest bit of asset boom insanity will never end
Having already warned that looming political uncertainty is not at all priced-in to US equities, Goldman's Alec Phillips points out that legislation was introduced earlier this week (July 7) in the US House that would attempt to revamp the FOMC's monetary policy process. The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation. While Goldman, do not expect the bill to get very far, but the issue does appear to be a growing focus for some lawmakers and we expect further action on it in the near term.
It’s time to think like a contrarian. Why? Because capital markets seem as bulletproof as one of those up-armored military personnel carriers you see in war zones. So what could really rattle stock, bond and commodity markets over the next 3-6 months? The go-to answer, steeped in history, is geopolitical crisis, where the logical hedges are precious metals, volatility plays, and possibly crude oil. Look deeper, however, and other answers emerge.
"The state-controlled fiat money system is the main cause of the international financial and economic crisis." This system, Thorsten Polleit warns, is based on the ability of banks to create money literally out of nothing. It is, in principle, a “large-scale fraud system” because today’s money is “intrinsically worthless and not redeemable”. This has damaging consequences for the overall economic development.
The world sits their looking on at China’s economy wondering how they can do it and that we can’t. But, there’s a price to pay for being economically sound and for having a growth rate that is much better than the Western world, even if there are some that say that the figures have been stir-fried in a wok.
This clown parade of clueless opinions (did we mention Goldman had BES at a buy until this morning?), stretched all the way to the very top with Bank of Portugal itself issuing the following pearl:
- BANK OF PORTUGAL SAYS BES DEPOSITORS CAN STAY CALM
Uhhh, what else would the Portugal central bank say? Panic and withdraw your deposits from a bank whose exposures to insolvent entities have been largely unknown until today (and even now).
Confirming every Wall Street stereotype that "ethics are all well and good, but money is more important," the ex-Goldman Sachs banker who wrote a book on whether the bank always put "profits above principles" has started a firm charging extremely high rates of interest (above 100% in some cases) for struggling small businesses... oh the irony.
Is there any doubt that we are living in a bubble economy? At this moment in the United States we are simultaneously experiencing a stock market bubble, a government debt bubble, a corporate bond bubble, a bubble in San Francisco real estate, a farmland bubble, a derivatives bubble and a student loan debt bubble. And of course similar things could be said about most of the rest of the planet as well. And when these current financial bubbles in America burst, the pain is going to be absolutely enormous.
The continuity bias is astounding as many with assets address this as an “extra rough patch” to get through rather than the clear paradigm shift it has been telegraphed to be.
This week was interesting to say the least and it is ending with a bang. We are covering a number of brief subjects this week. I hope you enjoy them.
Those who own the resources and influence the political control of those resources are the New Nobility in a pernicious Neofeudalism enforced by the very government that claims to serve the debt-serfs and tax donkeys.