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What Does the Fed Know That We Don’t?

Phoenix Capital Research's picture


The thought that should be on every investor’s mind today is “Why did the Fed have to stage the coordinated intervention yesterday?’


Put another way, what exactly does the Fed know that we don’t?


The whole thing smells fishy to me. Aside from the fact that the Fed clearly leaked its intentions as early as Monday night (hence the reason stocks rallied while credit markets weakened), there’s something peculiar about the fact the Fed chose to do this at the end of November.


Why November 30? Why not today or Tuesday?


I think the answer is that the Fed stepped in to help its institutional investor/ hedge fund buddies. November was a horrible month for this crowd. And with Bank of America approaching $5 per share (a level which would require many institutions to liquidate due to regulations), the Fed was also helping out its favorite insolvent bank as well.


Aside from this, Europe was approaching the End Game.  Germany won’t permit the ECB to print nor to issue Euro-bonds. The EFSF plan was dead before arrival, failing to even stage a 3 billion Euro bond auction without having to step in and buy the bonds itself. And the IMF wasn’t going to be an option either.


Put another way, ALL other bailout options had failed for Europe. The Fed was the lender/ intervener of last resort. That alone should have everyone worried as it indicates just how dire things had become in Europe.


However, there’s something far more worrisome about the Fed’s move which is that: IT SOLVES NOTHING.


Europe is facing a solvency crisis. Lowering the cost of borrowing Dollars does absolutely ZERO to help European banks raise capital. All it does is provide even more easy credit… which of course is the entire problem to begin with.


Banks across Europe are leveraged at an average of 26 to 1. This means that they own 26 times more assets (read: loans made to consumers, businesses, etc) than they do equity.


At these leverage levels, if the assets fall even 4% in value, you’ve wiped out ALL equity, rendering the bank bankrupt.


In this situation, providing more liquidity to these banks helps in terms of short-term operations, but it does nothing to address the core issue which is too little capital and too much leverage.


So this move, as dramatic as it was for the stock market has done NOTHING to solve Europe's solvency crisis.


Indeed, we have reports that a large European bank was on the verge of collapse last night. Things are so bad that Germany has drawn up legislation to allow countries to leave the Euro while remaining in the EU.


I believe Germany itself will be using this option in the next few weeks as it realizes that it cannot and will not be able to prop up the Euro any longer (even Germany doesn't have the 1 TRILLION Euros' in capital that European banks need).


So do not be fooled. The Fed's move today didn't fix anything. At most its bought the markets a few weeks' time before the whole mess comes crashing down.


Neither math nor common sense indicate that this will turn out well. Indeed, when this mess finally comes undone, it’s going to make Lehman look like a joke. We’re now talking about entire countries collapsing, not just private institutions.


Many people will lose everything in this mess. Yes, everything. However, you don’t have to be one of them. Indeed, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.


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Good Investing!


Graham Summers


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Thu, 12/01/2011 - 15:49 | 1935962 gserhan
gserhan's picture

It is a good article.  The thing is that Oblivious bama is the one panicking that he is willing to risk anything and the US pay anything to get his donkey stupid ass reelected.  The thing is that none of this is going to work.  The chinese have the biggest bubble of a lifetime which will make the US housing bubble look like a picnic!  I mean they were buying the Chateau Lafite for $2700 and the 2nd label Carruade Lafite which I paid for $27 8 years ago for $500!   Sooooooo  ARMAGEDDON IS CLOSER BY THE DAY, and I think stocks ought to plummet from here... Let the fed keep printing money.  They won't exist come 1/20/2013 neither will the current reckless white house.

Thu, 12/01/2011 - 15:32 | 1935877 Matt
Matt's picture


EDIT: nvm. 26 to 1 leverage simply means they have 26 to 1 leverage. the article has been corrected; my post is no longer relevant.

Thu, 12/01/2011 - 15:09 | 1935779 Bam_Man
Bam_Man's picture

What does the Fed know that we don't?

That Germany is about to announce that they are "temporarily" leaving the Euro?

The resulting stampede out of Euros could easily be the reason for yesterday's Central Bank announcement.

Thu, 12/01/2011 - 19:44 | 1936738 Scrilla
Scrilla's picture

Why? USD would rally like madness regardless of what swap rates are set at.

Thu, 12/01/2011 - 15:09 | 1935778 tony bonn
tony bonn's picture

zirp has intensified capital destruction while it greased massive debt fabrication.....the lunacy of falling interest rates has become an open spectacle of sordid effect....

fuck the fed

Thu, 12/01/2011 - 14:58 | 1935740 Lazane
Lazane's picture

the fed still knows that freeloading works and will continue to be paid for by those under harness and the lash. 

Thu, 12/01/2011 - 14:38 | 1935665 Sophist Economicus
Sophist Economicus's picture
What Does the Fed Know That We Don’t?


Nothing!   I heard they sent away for your free report too....


Thu, 12/01/2011 - 14:29 | 1935632 topcallingtroll
topcallingtroll's picture

Hey phoenix dude

You could develop a proprietary indicator that will give you a warning when a major announcement is a few days away.

Tyler noted the action on monday was strange, with ES, CONTEXT, credit, and stock indices diverging in unusual ways.

You could look at past major announcements and compare the preceding data to see how well it matches and you have yourself a new indicator that news has been leaked of a pending announcement, and everybody should margin up on risk wirhin the next 24 hours.

Thu, 12/01/2011 - 14:16 | 1935592 Widowmaker
Widowmaker's picture

Follow the money, bonuses for fucks are fish in a barrel with these ass pounders.   More God's work, done by Christmas.

Thu, 12/01/2011 - 14:01 | 1935529 steveo
steveo's picture
Majia's Blog About Nuke Pimps and Deception

Majia writes a blog about various things going wrong in today's world.  She is quite passionate about these subjects and spends alot of time researching things and summarizing them.

She had a great one today about the Deception of using Doubt as a propoganda tool.  

She also does alot of work related to exposing the Crimes Against Humanity that are being played out against all of us in the Fukushima Debacle.

Stop and visit and mention that Steveo sent you.

Thu, 12/01/2011 - 13:59 | 1935520 Georgesblog
Georgesblog's picture

The objective of commerce is always conquest. The borrower is servant to the lender. We are watching the world being consolidated into one corporation. The goal is one government, one currency and one master.

Thu, 12/01/2011 - 13:50 | 1935471 dumpster
dumpster's picture

so graham pretched no more QE// while it was happening

250 please news that is useless

this guy resides in a purple bubble

Thu, 12/01/2011 - 13:34 | 1935423 Liquid Courage
Liquid Courage's picture
What Does the Fed Know That We Don’t?

Gosh ... where to begin? For starters, how about: how America was sucked into WWI, then on up to who was behind the picket fence on the Grassy Knoll, everything in between and since.


Thu, 12/01/2011 - 13:29 | 1935406 Votewithabullet
Votewithabullet's picture

click click boom. useless fuck. You called the currency collaspe 8 fucking months ago. Your worse than that insane Russki general who said we'd break up in five regions. NOSTADUMBASS.

Thu, 12/01/2011 - 13:28 | 1935403 Neo
Neo's picture

Why November 31? Why not today or Tuesday?


OMG! They are even inflating the months!!!!!

Thu, 12/01/2011 - 13:33 | 1935420 backseatdriver
backseatdriver's picture

Neo, LOL. Funny is funny and that made me laugh.

Thu, 12/01/2011 - 13:28 | 1935402 Bazinga
Bazinga's picture

I also question why China made its move AT THE SAME TIME. I agree that a Euro bank was in dire need of propping up. What amazes me is the universal coordinated effort even while one of the participants is saying they will unite with Iran if necessary. All the Kings horses and central bank men are having alot of trouble putting the banking system back together again. Methinks they are all working together and they know something BIG that we don't...

Thu, 12/01/2011 - 13:56 | 1935502 Smiddywesson
Smiddywesson's picture

Central banks are coordinating everything, for example margin hikes in the West and Asia.  They have to in order to stall the collapse.  So it's not true that nothing was accomplished yesterday.  They successfully kicked the can.  No, they are not in complete control.  There could be a spontaneous war somewhere that collapses the system, but it's more likely they hold the antagonists apart while they amass enough gold to pick up the pieces after the collapse, meaning enough gold for a new gold referrenced system.  My guess is no war until gold purchasing operations are complete, certainly not from China, which if reports are even remotely accurate, has the furthest to go in terms of replacing their reserves with gold.

Thu, 12/01/2011 - 13:32 | 1935416 LawsofPhysics
LawsofPhysics's picture

We have had a one world government since the creation of the Fed, strengthened by the creation of the U.N.  China is on board with the program, has been from day one.  The end game for the real owners is total control and everyone working for Chinese wages, absolute parity the world over with a small few controling everything.  Has nothing to do with "wealth", this is 100% about power and control.

Thu, 12/01/2011 - 14:06 | 1935551 Smiddywesson
Smiddywesson's picture

Absolutely friggin dead on correct!!!!!!!!!!!!!!

Wealth is control, not paper.  Control is how they severed the connection between gold and money over the decades.  When you get right down to it, money is whatever the powers in control say it is, until they lose that control, then it reverts to gold and silver, the traditional money.  We can see that loss of control in the years long climb in gold and silver prices.  This is why those in power are switching us back to a gold referrenced system.  It follows the path of least resistance to reestablish their control over wealth.  We are going back to gold anyway as their paper system fails, and they intend to lead us there with the leash securely around our necks.   

Thu, 12/01/2011 - 13:27 | 1935400 TooBearish
TooBearish's picture

Another completely useless set of observations, thanks Graham are you MHFT too?

Thu, 12/01/2011 - 13:29 | 1935407 falak pema
falak pema's picture

Lol, read my post on other thread. On why the FED did it. Its too obvious to merit second post.

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