It looks like the market will never – ever – learn a lesson. When there is easy money to be had, the market loses its mind, just like the Nasdaq did in 1999 and 2000. Prince wrote the song 1999, where he says “gonna party like its 1999.” That’s exactly what’s happening today. Like the Nasdaq in 1999 & 2000, when there were plenty of warning signs about the economy and WILDLY overvalued IPOs, Fraud Street partied on as if it would never end. One lyric from the 1999 song that most in the market forgot, however, was “party over, oops, out of time.” Most of the folks who believed in the moronic valuations that Fraud Street sold them ran out of time indeed; they bought the top and lost 90% or more of their speculation, err, pardon, “investments.” But the market didn’t learn a lesson in 1999/2000 because EZ-Al Greenspan flooded the market with “liquidity” and near-zero interest rates. His reason was, and this was admitted by Al “Bubbles” Greenspan in many interviews, to INTENTIONALLY BLOW A HOUSING BUBBLE so that the bankster pickpockets wouldn’t lose money on those horrible IPO speculations, err, pardon, “investments.” When Greenspan finally started raising interest rates, it was too late. The baton was handed to Ben “Helicopter” Bernanke who was now in charge of lying to Congress, as well as you and me, about the state of the economy. He said that the rapidly escalating economic problems, especially in Greenspan’s housing bubble, were “largely contained.” He forgot to tell us that he meant on Mars.
What To Expect As QE 2 Ends, And Why By The Time QE X Is Over "Bernanke Will Be The Biggest Landlord In The Country"Submitted by Tyler Durden on 05/19/2011 16:11 -0500
We have long claimed that 2011 is playing out in a manner virtually identical to 2010, almost to the tic. And as we approach the end of QE2 in 6 weeks, a quick glance at what happened with stocks following the end of QE1 in March of 2010, will be illustrative of what to expect this time around, because contrary to what Comcast's business channel would want its ever declining viewers to believe, it never really is "different this time." To help with that comparison, here is a David Rosenberg summarizing what happened between the end of QE1 and Bernanke's August 27 announcement of QE2. If this is all it takes, then as we (and Scott Minerd earlier) have predicted, get ready for not only QE3, but 4, 5 and so forth. And not only that, but Rosie joins the likes of Zero Hedge, Minerd, Koo, Janjuah and all other pragmatics who realize that the Fed will never, never, allow deflation to run its course even if that means collateralizing the dollar with sewer bonds and physical housing, which incidentally is what Rosenberg predicts: "the day the QE programs run their full course, the Fed will have
likely added physical housing units to its balance sheet as opposed to
just mortgage paper. Ben Bernanke will be the biggest landlord in the
country at that time."
The similarities between the US today and Weimar pre-hyperinflation are striking. As in Weimar, US fiscal authorities are not taking any steps to rein in their loose money policies. Similarly, the US Fed, like Germany’s financial elites believes that currency depreciation is a good thing.
And so another frequently cited by Zero Hedge strategist, Guggenheim's Scott Minerd, steps up to the plate and makes the case that all those expecting an end to quantitative easing may well end up being disappointed (much to the joy of government darling - stocks; and more importantly the government's black horse - commodities). Minerd's speculation is based on what is glaringly obvious: the forced take down of commodity prices does nothing but provide the Chairman with the green light he so needs in order to proceed with further easing: "The case for extended low rates and possibly even QE3 grows stronger given the recent sharp declines in agriculture and energy prices. If price pressures from food and energy prove transitory, as Bernanke predicts, then inflationary expectations are likely to ease by the end of the year. A decline in inflation would certainly make the risk/reward trade-off for QE3 more attractive to the Fed chairman." Basically, the paradoxical outcome is that the lower the most "hated" commodities: crude, gold, silver drop, the higher the probability the Fed takes the step that sends them surging to new record levels. Elsewhere, Minerd once again follows our thinking: the econom is the primary catalyst for further easing (especially in light of fiscal easing being impossible under the current political breakdown): "What
would be Mr Bernanke’s motivation to endure the political fallout of
QE3? The same motivation for QE1 and QE2: namely, stimulating growth to
help employment recover. If economic growth stalls, this will become the
chairman’s primary motivation. Looking ahead, the expiry of tax cuts in
2011 and a government deficit reduction programme (likely to take
effect as early as 2012) will present real headwinds to growth." Lastly, doing a comp to that endless QE basket case demonstrates that at least from the Fed's perspective, the US has much more capacity for monetization as a percentage of GDP, to go on with LSAP for much, much longer: "The balance sheet of the Bank of Japan equals about 30 per cent of Japanese GDP. If the Fed were to hold as many assets on a relative basis, it could conduct a further $1,800bn worth of quantitative easing. That would amount to QE3, QE4 and QE5 (at the same size as QE2) just to get to where Japan is today. If US economic growth stalls, Mr Bernanke, an expert in all things deflationary, could view Japan as an imperfect but relevant precedent for further quantitative easing." And there you have it.
Confirming once again that Wall Street economist (and sell side in general) is the most useless profession in the world (though gladly accepting a 7 figures compensation), is the latest data out of Japan which is yet another stunner to most, as nobody, nobody, could have possible predicted that the Japanese economy would literally fall off a cliff in Q1, plunging at a 3.7% rate (down from -3% previously), which is double the consensus print of -1.9%. DOUBLE. And in nominal terms the collapse was simply epic: -5.2%! And yes, this is officially a recession. Of course, anyone reading Zero Hedge would have been perfectly aware of this outcome. 4 short days ago we said: "Increasingly we have come to believe that the real marginal economy over
the next several quarters will be neither that of the contracting US,
nor that of the rapidly tightening, yet still very much inflationary
China, but the (arguably) third largest one: that of Japan." Today our prediction is more than confirmed. And instead of hiding deep in the whatever holes these morlocks cralwed out of, Bloomberg for some inexplicable reason continues to look to their blatantly horrendous opinion. “The negative economic impact from the disaster will be on full display during the second quarter,” Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo, said before the report. “This recession may be deep, but short.” Yeah, sure. Short. We'll just hold our breath. And for it to be short, it means that the BOJ will be forced to print a few hundred trillion in Yen asap (just as we predicted here and here) right? Which in turn means that the USDJPY will surge and shift the Japanese recession even faster over to the US. And yes it means that the turbo print button among the central banks will get the F5 treatment as the second round of currency devaluation completes a lap.
The presumed default catastrophe driven by an inability to increase debt is precisely why it shouldn't be increased.
And just as everyone was starting to bet on the great USD renaissance, here comes Thomas Stolper to spoil the party, by not only refusing to close out his EURUSD trade reco after losing 800 pips in two weeks (and still being profitable), but by actually doubling down: "We have changed our forecasts to project more Dollar weakness."The reason is that the US apparently has a thing called a massive trade deficit that has to be normalized: "Since the last revisions to our forecasts, the Dollar decline has roughly tracked the expected path. Large structural imbalances in the US are highlighted by weakness in the tradable goods sector.The outlook for monetary policy differentials and BBoP trends remains USD-negative. Dollar weakness is common during periods with slowing GLI momentum." The bottom line: "We now see EUR/$ at 1.45, 1.50 and 1.55 in 3, 6 and 12 months, and $/JPY at 82, 82 and 86". Oddly enough, there is no mention of the real reason to position for a USD plunge. (Hint: Hewlett Packard). On the other hand, this may be the time to go balls to the wall long the USD, as it appears that Goldman is doing another USD fundraising campaign courtesy of its clients. Oh, and speaking of Goldman's clients, it's best to baffle them with bullshit. Here is Goldman's Jim O'Neill with a blurb from his Sunday note on why China is going down (among other things): "it seems to me that a bigger risk premia is still necessary for the Euro. I can’t see how it can remain at about 1.40." Yes. From Sunday. If your head didn't go boom yet, that's ok. It will soon enough. And way to cover your bases there Goldman...
David Stockman Says US Has "Run Out Of Runway" On Debt, Compares The Treasury Market To A "Roach Hotel", Endorses A Tobin TaxSubmitted by Tyler Durden on 05/18/2011 13:54 -0500
David Stockman has become every major news organization's (and CNBC) go to critic when it comes to bashing each stupid idea currently preoccupying the DC C-grade soap opera artists. Obviously, at the current time this would mean the budget deficit and the debt ceiling. On both those issues, Stockman's position is well-known. Today, when asked by Bloomberg's Tom Keene to compare the current deficit with that of Reagan's, Stockman spares no praise: "The essential distinction is that we had a clean balance sheet then - $1 trillion of national debt. Today we have $14 trillion in national
debt. We have used up all the runway, so to speak. We
have piled our national balance sheet with so much debt that the
government is at the very edge of a huge solvency crisis that isn't
going to be addressed unless both parties dramatically change their
position, and I see no sign of it. So we're going to have a gong show." Stockman also opines on the Monetary Roach Hotel that the US debt has become: "We have not had a two-way bond market. We have had a rigged
market that has been dominated by not just the Fed, but all the central
banks. Today over half of the $9 trillion in publicly-held debt is in
central bank vaults. I call it the 'Monetary Roach Hotel.'" Lastly, on a proposal endorsed by Zero Hedge back in the summer of 2009, namely the introduction of a Tobin tax for Wall Street's high-frequency casino: "Wall Street needs to have a transaction tax. I know they won't like it.
A tax on every trade, a small amount, would go a long way to putting
money in the coffers." As usual: absolutely spot on recommendations, which have little to no chance of occurring before the final bond crash finally takes away the multiple-use heroin needle from both DC and Wall Street.
The “American Realist” Says: Past as Prologue – Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!Submitted by Reggie Middleton on 05/18/2011 10:39 -0500
Last night, I spent an interesting time with the esteemed and world reknown macro economist, entrepreneur, NYU professor and strategist, Dr. Nouriel Roubini. Nouriel is a very, very bright guy. He has to be, he agrees with many of my viewpoints :-) On a more serious note, this article is the first installment of the valuation of real world, real assets and properties that are actually up for sale. I plan to walk my readers through the potential absurdity that is investing in a bubble that has not finished popping.
According to Gallup, attempts to distract the US population with trivial side stories is failing spectacularly, as 74% of survey respondents have responded that the economy is the "most important problem" facing America today, which is the highest percentage in two years, and since the market lows in March 2009. So even as the market has doubled, this appears to have done little for the average American who is now more concerned about the true "economy" than ever since the Great Financial Crash, and not merely the one indicated by the Russell 2000. Chalk one more failure to Ben's attempt at forcing the wealth effect upon the great unwashed.
I am now of the opinion that the US will have to go back to fighting deflation soon and that Q/E (probably in a different form) will be needed. Massive inflationary impacts look to be delayed (for now): Whilst I am happy to accept that Bernanke may have delayed or stopped a deep depression for now and that he has made a lot of Wall St. guys very rich, the whole idea of the Q/E programme was supposed to be, if we are to believe him, to create growth and set the economy back on a sustainable growth path, reduce unemployment and cure the housing problem by getting banks to lend and the consumer spending. Mate, you failed! Unemployment is still at 9% (and a lot more if you look at the real stats), the participation rate is falling and the amount on food stamps is over 4mln! Housing is spiralling lower again as prices continue to fall and banks, whilst having their balance sheets ballooned by free money still sit on hidden toxic waste from the sub-prime issue and refuse to lend at competitive rates.
Richard Koo Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression YetSubmitted by Tyler Durden on 05/17/2011 17:09 -0500
Over the past several days, quite a few readers have been asking us why we are so confident that QE3 (in some format: it does not and likely will not be in the form of the Large Scale Asset Purchases that defined QE1 and 2 - the Fed could easily disclose that it will henceforth sell Treasury puts, a topic discussed previously, or engage any of the other proposals from Vince Reinhart disclosed in June of 2003) will eventually be implemented by the Fed. Luckily, instead of engaging in a lengthy explanation of the logical, Nomura's Richard Koo comes to our rescue with his latest research piece. While we disagree with Koo on various interpretations of his about monetary theory (namely that the Fed is not in effect "printing" money and thus creating inflation - this is semantics and leads to a paradoxical binary outcome, whereby if there Fed was successful in boosting the economy, the economy would indeed be flooded with the nearly $2 trillion in excess reserves held with reserve banks. And good luck trying to contain this surge by changing the IOER - if the Fed indeed pushed the IOER to the required 5%+ level it would immediately destroy money markets, leading to the same liquidity freeze that marked the post-Lehman days, confirming the "Catch 22" nature of Quantitative Easing that we have observed since its beginning) we do agree with his analysis of what would happen to the economy if either stocks or commodities are in a bubble (and judging by the violent opinions out there, most investors believe that either one or the other has indeed reached bubble territory), should QE2 end cold turkey: "Viewed objectively, the central banks are trying to push up asset prices using quantitative easing and the portfolio rebalancing effect. The resultant rise in asset prices based on this effect represented a potential bubble—or at least a liquidity-driven event—from the start. The question is whether the real economy can keep pace with asset prices formed in those liquidity-driven markets. If it cannot, higher asset prices will be considered a bubble and will collapse at some point. The resulting situation could be much more severe than if quantitative easing had never been implemented to begin with." Bingo.
Stock markets on crack are about to join Lindsey Lohan and Charlie Sheen in rehab. We are witnessing the end of the third great bubble in debt, the greatest accumulation of IOU’s in history. The Federal Reserve is now manipulating all markets, and the exercise is certain to end in tears. The only way out from this will be to suffer an economic and financial crisis worse than we have seen to date. Dow 3,500, here we come. Looking for oil at $15 a barrel. Gold craters to $250 and silver to $4. A 2% yield on ten year Treasuries anyone?
Soros Sells Gold ETF While Paulson Buys - PIMCO Favour Gold As A “Protection Against What Can Go Wrong”Submitted by Tyler Durden on 05/17/2011 06:09 -0500
The confirmation of George Soros ETF gold sale has again garnered much media comment. Soros’ $28 billion fund decreased its holdings of the SPDR Gold Trust, the exchange traded fund. Soros had bought gold to protect against possible deflation, though his fund now believes there is a reduced chance of such a condition, the Wall Street Journal recently said, “citing people close to the matter”. Should Soros and his fund think that inflation is now a greater risk than deflation then it is curious that they would sell all their ETF holdings. It is also curious as Soros is on record regarding having serious concerns regarding the outlook for the euro and the dollar and the dollar as reserve currency of the world. There is of course the precedent of other hedge fund managers , such as David Einhorn, who have also sold their gold ETF holdings but bought physical bullion in allocated accounts due to a concern about counter party and systemic risk. This would allow Soros to discreetly accumulate bullion away from the public and media spotlight that result from SEC filings. Paulson & Co., the $36 billion hedge fund founded by John Paulson kept its largest holding - $4.41 billion in the SPDR Gold Trust. Paulson’s belief in gold is seen in the fact that those who buy his fund can have their stakes denominated in gold rather than in dollars, meaning the value of their investment rises and falls with the price of bullion – lessening exposure to the dollar. Paulson, unlike Soros, is on record as having purchased gold to protect against inflation. PIMCO, the largest bond fund in the world, are also increasingly allocating funds to gold in their global equities portfolio. “The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Anne Gudefin, PIMCO’s global equities portfolio manager, told Fortune magazine May 12.
The economic peril that we find ourselves confronted with, has been ninety-eight years in the making. The confluence of debt, demographics, delusion, and denial has left the country at the precipice of annihilation. There are two kinds of people in the world, those who control the money and those that are controlled by those who control the money. The last century has been marked by a methodical looting of the good (working middle class) by the bad (Federal Reserve & bankers) and supported by the ugly (Washington D.C. politicians). When historians pinpoint the year in which the Great American Empire began its downward spiral they will conclude that year to be 1913. In this dark year for the Republic, slimy politicians, at the behest of the biggest bankers in the country, created a private central bank that has since controlled the currency of the United States. This same Congress staked their claim as the most damaging group of politicians in US history by passing the personal income tax in the same year. These two acts unleashed the two headed monster of inflation and taxation on the American people.