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The 5 Trillion Dollar Question

Sprout Money's picture




 

2014 has been a volatile year to date. The amazing returns of years past are definitely not on the boards just yet and the longer the stock market hesitates, the higher the odds are for it to go lower. Consequently, the uncertainty is increasing daily amongst investors and not much would be needed to completely destroy their (renewed) faith; the sell button is certainly seeing a lot more action these days in online brokerage accounts.

A short break also gives us the opportunity, however, to investigate the big picture once again, as the underlying issue of this faltering market is not the change of a single digit in the year (like changing seasons), but a deeper, fundamental reason. What stopped the market in its tracks, namely, is the Fed’s QE program being scaled back. On the 18th of December, to be exact, the US central bank started ‘tapering’ and things are moving along swiftly. Last year, the Federal Reserve bought 85 billion USD of mortgage debt and government bonds every month, but at the moment that monthly figure has gone down to 55 billion USD. According to insiders, the Fed even wants to put an end to QE before the year is over.

The way things are looking now the Fed’s balance sheet will stop its explosive growth quite soon as a consequence of this target, although we did pass the 4 trillion USD mark recently.

Fed balance sheet 2014 4 trillion dollars

Over the coming months a few hundred billion dollars will still be added to the Fed’s balance sheet, after which the party would be over. In theory. In practice we can already see the effects of tapering as well, as the stock market rally of these last few years was completely built on the monetary assistance of the central bank. The Fed wants the market to stand on its own two feet, but whether that is actually going to happen is, of course, another matter.

The market is a fickle creature, not easily swayed, and especially not when downside pressure is in the mix. Most investors remember the downward spiral of 2008 like it happened yesterday as the markets fell by a couple dozen percentage points in just a few months and the Fed does not want that to happen twice, we assure you. As a consequence, the central bank will have to choose its words and deeds very carefully and we assume that there is actually some wiggle room in the tapering process. The Fed could, for example, take a short break from tapering, although it is clear that this monetary insanity needs to stop at one point. Most likely, the Fed drew a line in the sand around the 5 trillion dollar mark.

The real question is then: if the Fed will definitively put a stop to QE, will investors be able to keep the stock market rally alive on their own? Time will tell, but the Fed possibly has a few more tricks up its sleeve to put the new dollars that have been created over the last few years to work effectively as most of it is currently parked on the central bank’s balance sheet. The Fed could, for example, raise its interest rates on bank reserves as the banks are barely paying anything today and if that new money is going to be pumped into the system through fractional banking, there is a lot more upside to the market. But that is a trajectory that also carries risk for the Fed as it still has control to some degree over where the money is going now, but once it leaves the balance sheet of the central bank, it will find its own path and most likely the one of least resistance. There is no guarantee that this path will take it back to the stock market whatsoever.

In short, there is a lot of uncertainty around this new policy of the US central bank. Scaling back its quantitative easing program could stop the flow of money to the stock market, potentially with a huge correction as a consequence. On the other hand, if the Fed keeps writing checks, it risks inflation getting out of hand in the long term, which would also be bad news for the stock market. The most sustainable scenario for stocks – a correction followed by a new breakout – seems likewise to be running into more and more challenges. That is why we will remain cautious around the stock market over the coming months. The only thing that would truly convince us now is a powerful breakout to the upside on all levels. Potentially, Janet Yellen could still deliver that, but until that time, cash is king.

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Mon, 04/28/2014 - 10:38 | 4703895 elwind45
elwind45's picture

freezing DOLLAR asset upsets Russia except they are dumping on us? Frozen from selling? Hard to collapse the dollar market IF YOU CSNT FUCKING PLAY in it?

Mon, 04/28/2014 - 10:22 | 4703829 elwind45
elwind45's picture

That was the best thing the Fed could have done to continue the rally assign a FEMALE chairperson

Mon, 04/28/2014 - 10:19 | 4703818 elwind45
elwind45's picture

Someday your ship will come in from waters far from whatever action you have been missing or going to miss or whatever? Cash is king? You really hope your right and really care about being right more than other people staying solvent? Cash is king and your a moron.

Mon, 04/28/2014 - 06:45 | 4703281 TheSecondLaw
TheSecondLaw's picture

The real question for me is not "will QE eventually end?" but rather: How do you extract the trillions that have been printed from the system going forward?  Because if it's okay to leave trillions created out of thin air in the system, hell, why not print trillions more?

Mon, 04/28/2014 - 08:42 | 4703483 LawsofPhysics
LawsofPhysics's picture

A rhetorical question no doubt.  We know how this ends.  It ends with a serious thining of the herd.  All those paper promises on future labor/productivity that will never materialize.

Mon, 04/28/2014 - 08:48 | 4703500 Jumbotron
Jumbotron's picture

The Four Horseman:  An economic documentary

https://www.youtube.com/watch?v=5fbvquHSPJU

 

Mon, 04/28/2014 - 05:57 | 4703220 Comte d'herblay
Comte d'herblay's picture

Until the "Derivatives" markets are fully 'financed', there will be no realization of   "the Fed’s balance sheet will stop its explosive growth quite soon as a consequence of this target, although we did pass the 4 trillion USD mark recently".

Somewhere around a less boring number of 1 quadrillion.  

Million, billion, trillion are now just 'meh' numbers that have outlived the facts. 

Unless "soon" and quadrillion are used in the same sentence, J B T GD MF SOBin DIP!!!  fer krissakes. 


Mon, 04/28/2014 - 02:32 | 4703118 Magooo
Magooo's picture

Gold will be the last man standing

Mon, 04/28/2014 - 02:06 | 4703096 dunce
dunce's picture

The last sentence of this screed says that ultimately the fed has control of the market. Does anyone take comfort in that fact?

Mon, 04/28/2014 - 05:59 | 4703222 Comte d'herblay
Comte d'herblay's picture

I do and have.  When in history has the opportunity to buy a 979 porsche in just one week of options trading EVER been telegraphed so consistently for so long?

And who is (are) the telegrapher (s)?  Ben, and Janet. 

 

Sun, 04/27/2014 - 23:50 | 4702903 AdvancingTime
AdvancingTime's picture

Few people ready understand the economy. The study of economics is often baffling and confusing. Many economic theories exist but many are full of holes and conundrums. Much of how people react to a policy may have to do with timing and perception instead of reality. Economics is full of loops that feed back upon themselves and unexpected pitfalls based on expectations.

All this can become quite abstract. Economist predict events that never tend to unfold as expected or planned. Many of the "modern monetary theories" in use today have not been proven over time, but reflect an attitude that we can control  economic cycles better than in the past. We shall soon see if that is indeed true. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/03/few-people-really-understand-econ...

Sun, 04/27/2014 - 23:47 | 4702897 rsnoble
rsnoble's picture

IMO........if they 'can' provide a breakout to all new levels for everything they will do so.

No stock crashes, no recessions, no defaults, no unemployment, etc etc etc nothing but peaches and cream for the good ole USA.  Like it or not.

Sun, 04/27/2014 - 16:18 | 4701707 Flying Wombat
Flying Wombat's picture

"Sound Money And Abolishing The Federal Reserve: Dennis Linthicum"

I interviewed Dennis Linthicum on Friday.  Click here to listen.  He's cut from the same cloth as Ron Paul on this issue and more.  In a true David vs. Goliath primary contest, Dennis is trying to unseat RINO Congressman Greg Walden, who is very much a part of the "establishment."  

I'd urge everyone here to look into Dennis Linthicum's campaign because getting people like him in Congress will bring us closer to getting rid of the Federal Reserve.  Click on the link above for the interview and more info.

Sun, 04/27/2014 - 16:12 | 4701682 wildblue09
wildblue09's picture

Financial analysts have covered every aspect of the out of control bankster madness but none of them could see this interesting gold making technology breakthrough coming.  The pace of technology today is breath-taking and after 200 Lab trails proving its new patent pending precious metals technology, a Canadian Research Company now has a new LENR method for making high yield gold from barren waste seed ores.

Yes indeed we make real gold and view the development as both scalable and highly commercial with an eventual price point near that of aluminum.

To see a video of a classic Garage start up about to go stratospheric see:   https://vimeo.com/90037448

The company is in due diligence mode with TreveriMarket.com to do a US $5.0 million raise to construct a pilot plant. This will move the project from the Lab where large gold beads were produced to where we can start pouring bars.

The technology discovery story will break on Kitco.com. They are sitting on a major article waiting for the Treveri deal to put up the landing page.

Fiscal Reset, inflation, stock prices down, unemployment up, all the rest of it…. bring it on.

Mon, 04/28/2014 - 12:59 | 4704386 RaceToTheBottom
RaceToTheBottom's picture

Alchemists unite!!!!

Mon, 04/28/2014 - 11:27 | 4704047 mccvilb
mccvilb's picture

After watching the video I realized these two birds really believe they're onto something. It was apparent from the personal investment they made in time, equipment and processes. However exciting, their efforts are misguided.

Sorry to be the one to pop their balloon, but all they've been doing is recovering trace elements. A cubic yard of ordinarydirt/ground glass contains elements of everything, including uranium and arsenic. It's also why their au yields were insignificant. If they continue on they should do so with great caution. Back in the Seventeen Hundreds women hired to paint those colorful dial faces on wooden clocks died from arsenic poisoning just from coming in contact with it.

I'd recommend they redirect their efforts toward sea water. They should find their yields jump significantly. The question is, will they rise to a level where they can achieve break-even?

Sun, 04/27/2014 - 23:05 | 4702821 AGuy
AGuy's picture

LOL! Just another way for fools to part ways with their money!

If they really had a way to turn junk into PMs the would have kept it a secret.

 

Sun, 04/27/2014 - 17:52 | 4701975 TheReplacement
TheReplacement's picture

This would make gold no better than paper for money.  Print, Print, Print.

Sun, 04/27/2014 - 18:00 | 4701995 wildblue09
wildblue09's picture

Replacement.... I see the price of gold reaching $10 K /oz in the mid-term. In the longterm 10 - 15 years the price will come down to less than $100 / oz. 

Gold will always have value as a noble element and much of this value is yet to be discovered.

Do a patent search for the two terms, "Gold, Nano" and you look at the filing time frequency plots and you will start to get some idea of this.

Martin

Sun, 04/27/2014 - 18:03 | 4702006 Cobra
Cobra's picture

Please tell me there's no way to do this with silver...

Sun, 04/27/2014 - 18:24 | 4702075 wildblue09
wildblue09's picture

All elements can be made from artificial seed ores with LENR technology. We have made gold silver, platinum, paladium, copper, iron, rohdium, irridium, its just about setting the right vibratory energy and heat to create what the patent describes as the "elemental bloom condition" maintian that condition for a while and you have new elements forming.

Martin 

Mon, 04/28/2014 - 06:02 | 4703226 SolarSystem1932
SolarSystem1932's picture

Martin,

Your video showed modified microwave ovens.  If I'm seeing correctly, you've reoriented the magnatron cathod to 'point' into the oven.  If I am really seeing the cathod, then you MUST be aware those cathods are surrounded by beryllium, a toxic material, as you know.

You need to have some type of guard to prevent smashing those cathods and dusting yourself with this toxic material.  Althought YOU probably already know this, this serves as polite reminder to others on this board that may have similar interest.

http://www.youtube.com/watch?v=4Zev8Ws4P1Y

Good luck with your efforts, but I (personally) would never go public with anything close to alchemy.  Looking forward to future articles.

 

 

Mon, 04/28/2014 - 07:50 | 4703354 Doña K
Doña K's picture

Since we are on the microwave subject. now anyone can calculate the speed of light as follows:

Remove the turntable from the microwave and replace with chocolate on a plate (so the plate does not rotate),

Heat until it just starts to melt - about 20 seconds, depending on the power of the oven. There will be some melted hot spots and some cold solid spots in the chocolate.

 

The distance between the hot spots is half the wavelength of the microwaves, and the frequency of the microwaves will often be printed on the back of the oven.

The speed of light is equal to the wavelength multiplied by the frequency of an electromagnetic wave (microwaves and visible light are both examples of electromagnetic waves). So from this simple experiment, and some easy math, you can work out the speed of light.

 

Hot spots distance * 2 * Microwave frequency

 

For real

 

Sun, 04/27/2014 - 23:10 | 4702832 AGuy
AGuy's picture

BS! You can't create heavy elements beyond iron with any nuclear reactions. Fusion only works up to Iron. All heavier elements than Iron are formed in Super novas.

 

Mon, 04/28/2014 - 08:06 | 4703389 HellFish
HellFish's picture

I believe you are wrong.  The supernova still 'uses' fusion to create heavier elements it's just that heavier than iron fusion reactions do not produce energy - they require energy. (Does the term endothermic apply to fusion reactions?)

Mon, 04/28/2014 - 05:05 | 4703197 Joenobody12
Joenobody12's picture

You forgot electroplating, LOL. 

Mon, 04/28/2014 - 08:19 | 4703420 Edward1290
Edward1290's picture

LMAO..

Sun, 04/27/2014 - 19:37 | 4702258 Cobra
Cobra's picture

I figured. What do you think the price / oz would have to be before it would be profitable to do so on a commercial scale with a reasonable corporate margin? I'm taking a wild guess at $150 / oz... My assumption is that you could make any element for around the same cost, so in that sense you could really just bang out whatever's worth the most, essentially controlling the markets. If I could do this, I wouldn't tell anyone, for fear of a knock on my door, if you know what I mean.

Sun, 04/27/2014 - 20:34 | 4702382 wildblue09
wildblue09's picture

The lab data to date shows somewhere about 4 to 5 times that of aluminum or better if we can tweak it a bit. I know what you mean by the knock on the door.... been there done that and have the tee-shirt from my time in new energy research. They can be handled, of tremdendous intelligence but lacking some dimensionalness.  For the time being we are just seen as crackpots, so you can shout it from the roof tops and most can not get their minds around the process. My patent lawyer is one of the best in the north west and if we had not history on new energy patents, he would have just shown me the door.

The pilot plant will go from beads to bars for less than five mil and get us to a forward sell point, but we will raise $100 mil to have the resources to deal with a little blow back while we kick it up.

Sun, 04/27/2014 - 22:42 | 4702760 litemine
litemine's picture

I am a Non Believer, and when I see a company promote a stock that Creates Gold...... I will buy Puts(SHORTs)and lots of them....I will make lots of Fiat money then buy Real Gold.

Sun, 04/27/2014 - 20:37 | 4702423 Cobra
Cobra's picture

Wow... A kilo of anything for a few dollars. You'll spend all that and more defending your patent(s).

Godspeed.

Mon, 04/28/2014 - 07:35 | 4703338 Doña K
Doña K's picture

@ Wildblue09

Yes it may be possible to make gold but the price would be much much higher than digging it out.

There is a diamond making machine and the same principle applies. However diamond pricing is relative to size. Therefore, it is only cost effective on very large diamonds and the market for those is tiny.

Sorry to bust you bubble. One thing to report on that, another to celebrate and make moronic predictions.

Sun, 04/27/2014 - 16:07 | 4701669 moneybots
moneybots's picture

" Most investors remember the downward spiral of 2008 like it happened yesterday as the markets fell by a couple dozen percentage points in just a few months and the Fed does not want that to happen twice, we assure you."

 

It has already happened twice.  Third time will be the charm.

Sun, 04/27/2014 - 15:46 | 4701588 zipit
zipit's picture

The "E" stands for "Eternity," right?  The Fed will "NEVER" stop ontil the whol house of cards comes crashing down like like a Metro train over Zoe Barnes.

Sun, 04/27/2014 - 15:45 | 4701570 ebworthen
ebworthen's picture

"The real question is then: if the Fed will definitively put a stop to QE, will investors be able to keep the stock market rally alive on their own?"

Funny.  No QE = S&P 666 (true valuation).  Pretty sure that's part of the plan.  Raising rates just to sprinkle some extra spice in the stew.

How else can Wall Street rake more of Mom and Pop investor's chips off the craps table?

It has to be a calamitous crisis to bail out the banks/insurers/corporations - again.

"Tanks in the streets" and "no one saw this coming" and "invest for the long term".

Lather, rinse, repeat.

Sun, 04/27/2014 - 15:41 | 4701568 I Write Code
I Write Code's picture

Nope, it's QE forever, go tell it on the mountain, Bernankebux is the newborn king.

Sun, 04/27/2014 - 15:09 | 4701470 kellycriterion
kellycriterion's picture

The only reality is cash flow and confiscation. New confiscation protocols have been put in place, particularly in Europe. Cash flow priorities are clearly western governments, cartel banks, and their respective food chains.

If you're a person who can't live by their wits, you're reduced to hoping that whatever slice of the pie you've been allowed to keep isn't cannibalized to feed growing corruption.

Sun, 04/27/2014 - 14:32 | 4701381 Kayman
Kayman's picture

Another confession that the Market (stocks and bonds) is the Fed. With greater and greater exposure to the public that all markets are rigged, the chance of passing off high priced stocks onto the suckers (the little people) becomes less and less. That is why it has been soiled panty days for the financial criminals.

From the Fed's (and their owners) point of view, the $4 Trillion has more or less filled the hidden bad loans and excess spending in Washington, so the Fed must really be concerned if they are not prepared to print, say another $6 Trillion out of thin air.

Buying a paper promise that someone is going to make me whole on an "investment" would be a little like asking Madoff or Corzine to invest your granny's life savings.  

 

Sun, 04/27/2014 - 13:13 | 4701200 RaceToTheBottom
RaceToTheBottom's picture

Interesting article, something the FED specifically focuses on doing the wrong thing.

 

http://www.theguardian.com/commentisfree/2014/apr/27/thomas-piketty-econ...

Sun, 04/27/2014 - 10:39 | 4700956 new game
new game's picture

cash is king, ok, thanks. really you must be saying - wait for outcome of policies that have painted the fed into a corner.

eric, don't forget when you make the rules you can change them too. one rule that will never change is gold is real money...

Sun, 04/27/2014 - 10:35 | 4700947 Cycle
Cycle's picture

The Fed sells the illusion, and the bond market buys the illusion, that the balance sheet will some day be liquidated. So far anyway. The main benefactor of the Fed operations is the US Treasury, which would be bankrupt if it had to pander its debt at market rates.  But then again, how do you fight a couple of trillion dollar imperial wars and not raise taxes?

Mon, 04/28/2014 - 04:02 | 4703152 TheRideNeverEnds
TheRideNeverEnds's picture

Print the dollars till nobody will accept them.  If Rome is any guide we still have several hundred more years and several thousand points to go in the S&P.  

 

Hell, look at the markets, GBP/USD, EUR/USD are going straight up, so are the e-minis.  

 

As the dollar goes to zero everything measured in it will go to infinity, its really quite simple.  The real question is when will people really start to act on the fact that the USD is a worthless piece of shit and who will the US start a war with when that happens?  China / Russia seems like the obvious choice and for that reason I would bet against it, especially since RUS/ CHI would blow the US the fuck out in a war; maybe the US will fight itself?  Civil War 2: Electric Boogaloo?  

 

Who knows, one thing is for sure though, new highs from here are a given and we aren't even remotely close to a top.  Not. Even. Close.

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