• Sprott Money
    05/05/2016 - 06:02
    Why is a Deutsche Bank mouthpiece suggesting “negative retail deposit rates or perhaps wealth taxes”? The answer is to (supposedly) stimulate our economies.

Terrifying Technicals: This Chartist Predicts An Anti-Fed Revulsion, And A Plunge In The S&P To 450

Tyler Durden's picture




 

Via Walter J. Zimmermann Jr. of United-ICAP,

"Sooner or later everyone sits down to a banquet of consequences."

- Robert Louis Stevenson

Main Points

1. History is written as much by the unforeseen consequences of key events as by the events themselves. We prefer not to think in these terms, but history clearly reveals that the adverse consequences of well intended efforts often have a much more dramatic and lasting impact than the original efforts themselves.

2. In fact history suggests a law of adverse consequences where the more insistent and forceful the well intended effort, the more dramatic, powerful and harmful the blowback. In simple terms, attempts to force the world to improve have always ended badly.

3. This law of adverse consequences is a very common phenomena in medicine and is known by the euphemism of ‘side effects’. Adverse drug reactions to prescribed medications are the fourth leading killer in America, right after heart disease, cancer, and stroke. However this expression of the law of unintended consequences gets even less press than its expressions in human history. Neither is a popular topic.

4. One could easily write several volumes of history focused exclusively on the unwelcome repercussions from otherwise well-intended efforts. However as this is a subject that we would all rather avoid I suspect it would be a very difficult book to market.

5. Instead of a book I have opted for two pages of examples. The present situation strongly suggests that the high risk of unexpected blowback from current economic policies are much more deserving of our full attention than the past history of unwelcome consequences.

6. QE has already created what is arguably the most bullish market sentiment in history. And that extreme bullish sentiment has already driven most stock indices to new all time highs. So now would be a good time for some sober reflections on what could go wrong.

7. One sector that seems dangerously poised to go badly wrong are the junk and emerging bond markets. What will happen when Treasuries start yielding the same rates as previously issued junk debt? A massive exodus will happen. Junk bonds and emerging market debt will become a disaster area.

8. We already know how wildly successful Fed stimulus has been at creating speculative bubbles. Fed inflated bubbles that have already burst include a Dot-Com bubble, a credit bubble, a real estate bubble, and a commodity market bubble. The biggest bubble of them all is still inflating. That would be this stock market bubble.

9. There are now fewer banks than ever before in modern history. And the biggest banks are larger than ever before in history. The war against ‘too big to fail’ was lost before it began. Fewer, bigger banks means a more fragile financial system.

10. The worst of the bullish sentiment extremes of previous major stock market peaks have all returned. Analysts are positively gushing with ebullience. There is a competition to see who can come up with the highest targets for the various stock indices. No one sees any downside risk. All are confident that the Fed can and will fix anything. This is a situation ripe for adverse consequences. This is a market where blowback will be synonymous with blind-sided. No one will prepare for what they cannot see coming.

Comparing Costs: Major US Wars versus Quantitative Easing

The chart above suggests that the magnitude of the Federal Reserve economic stimulus program is only comparable to previous major war efforts. The dollar costs plotted here bears that out.

War Costs

All of the war costs on the previous page were taken from one report dated 29 June 2010. That report was prepared by Stephen Dagget at the Congressional Research Service. I adjusted his numbers to 2013 dollars. You can find his report in PDF format on-line. However some further comments may be useful here.

Civil War

The Civil War number combines the Northern or Union costs and the Southern or Confederate costs. In 2011 dollars the price of waging the war for the Union was $59.6 billion dollars and $20.1 billion for the Confederacy. I simply added these two numbers and then converted to 2013 dollars.

Post 9/11 Wars

Here I combined the costs of the Persian Gulf war, and Iraq war, and the war in Afghanistan into one category and then adjusted to 2013 dollars.

Sending a Man to the Moon

I thought it would be interesting to compare the costs of sending a man to the moon to the costs of QE. Most references to the cost of putting a man on the Moon only cite the Apollo project. But of course that is very wrong. Apollo arose from Gemini which grew out of Mercury. So for the true cost of sending a man to the Moon I included all costs for the Mercury missions, the Gemini program, the Lunar probes, the Apollo capsules, the Saturn V rockets, and the Lunar Modules. I relied on numbers gathered from NASA by the Artemis Project. I then converted those costs to 2013 dollars.

World War II versus Quantitative Easing

WW II

World War II transformed the United States from a sleepy agricultural enterprise into the world’s dominant economic super-power, and defeated both Nazi Germany and Imperial Japan at the same time. It may seem entirely callous to calculate US Dollar costs for a war that claimed 15,000,000 battle deaths, 25,000,000 battle wounded, and civilian deaths that exceeded 45,000,000 but there is a point to this exercise.

The second world war defeated the strategy of geographical conquest through militarism as a national policy. Of course WW II had it’s own undesirable blowback as anything on this gigantic a scale would. However it seems pretty clear that replacing fascism and militarism with democracy was a step of progress for mankind.

WW II and QE

Since the 1950’s many have argued that it took World War II to pull the world out of the Great Depression. As a life-long student of the Great Depression Bernanke must be aware of this debate. In terms of the dollar amounts involved, World War Two is the only project comparable in size to QE. So it seems reasonable to assume that Bernanke’s goal here is to have QE fulfill the economic role of a World War Three; a war-free method of pulling the world out of the Great Recession. However human history suggests that the sheer magnitude and forced nature of the QE program all but ensures serious, unexpected and adverse consequences.

Learning from History

I am not bearish on the human race. When I read history I see things getting better. When I read history I find the slow replacement of brutality with compassion. When I read history I find the long term trend to be the replacement of centralized authority with local self-determination. And I find that every single effort to fight these long term trends has failed. And as history continues to unfold the efforts to fight these trends tends to fail more quickly, more dramatically, and more decisively.

There is an ancient Chinese proverb that states “Plan too far ahead and nature will seem to resist.” That aphorism definitely resonates with my experience and observations. If there is something inherent in the flow of time that unfolds an improvement in the human condition, then there is also something in the nature of things that resists the application of force, whether well intended or not.

If all of the above is an accurate accounting of things, then the key issue for policy makers is finding the fine line that separates supporting the natural flow of human evolution from attempting to force change. The former will help while the later will end badly. The question today has to do with Quantitative Easing. Is QE a gentle nurturing of economic evolution or is it the next doomed attempt to force things to get better? The QE program is so enormous, and relentless, and insistent, that I fear it is the later. And if QE is a huge attempt to force the economy to improve, than we had better start bracing for the blowback.

QE: the blowback to come

What kind of blowback should we prepare for? The lesson of history is that trying to force things to get better does not merely create unwelcome repercussions. It does not merely slow the pace of natural evolution. Attempts to enforce a certain outcome always appears to create the opposite effect. We do not find a law of adverse consequences. We find a law of opposite impacts.

Let us review the sample examples from the previous charts. Every effort to jam an ideology or a plan down the throat of the world only creates the opposite of the intended effect. I would maintain that this is one of the few lessons from history that can be relied on.

If the Federal Reserve is trying to force feed us prosperity then the inevitable blowback will be adversity. If the Fed is trying to compel the most dramatic economic recovery in history, then the blowback may well be the deepest depression in history. If the Fed is trying to enforce confidence and optimism then the blowback will be fear and despair. If the Fed is trying to force consumers to spend then the blowback will be a collapse in consumer confidence.

I sincerely hope that I am completely wrong here, that I am missing something, that there is a flaw in my logic. However until I can locate such a flaw I must trust the technical case for treating this Fed force-fed rally in the stock market as something that will end badly.

Here's how it plays out...

 

 

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Fri, 01/17/2014 - 18:38 | 4342384 DOT
DOT's picture

Meh.

Fri, 01/17/2014 - 18:40 | 4342389 knukles
knukles's picture

Meh, too.

Fri, 01/17/2014 - 18:52 | 4342413 Frozen IcQb
Frozen IcQb's picture

Interesting stuff but

Fri, 01/17/2014 - 18:56 | 4342447 CarrierWave
CarrierWave's picture

But, but... none of that matters for those who want to profit from the rising markets.

Most people do not care about the above analysis and they are the ones who buy and push the markets higher.

That's where you want to be. Not follow the 'truth' that only few accept.

Stay on the sidelines and miss the rising markets

2014 will see the markets heading higher still courtesy of Central Banks support and also because it's an election year.

Does anyone really think that the Gov will allow the markets to drop more than 3-5% in an Election year?

Also, as long as Interest rates stay as low as they are, stocks will keep going higher.

The FED got the hang of how to keep the markets going higher and they are the ones at the Helm. Not the distinguished writers of the Articles posted on ZH.

Fri, 01/17/2014 - 19:11 | 4342488 Frozen IcQb
Frozen IcQb's picture

Time to head for the pub.

All the good looking ones usually show up at 2:30am

Fri, 01/17/2014 - 21:23 | 4342917 Richard Chesler
Richard Chesler's picture

How much to bailout Goldman this time?

 

Fri, 01/17/2014 - 21:49 | 4342982 Crisismode
Crisismode's picture

 

 

Looks like about 666 . . .

 

 . . . Sounds about right for the Squid and his pal the Anti-Christ, don't you think?

 

Fri, 01/17/2014 - 23:21 | 4343147 Fish Gone Bad
Fish Gone Bad's picture

The Fed won't stop and the consequences won't happen for a long time.  Seriously.  Who EXACTLY is going to stop the central bank from doing whatever the fuck it feels like?  They are giving money to politicians,  keeping people on food stamps, and buying the government.  All those worthless mortgage backed securities are slices of America and the banks will pretty much own everything, soon enough.

Google: cursing fish cafepress

Fri, 01/17/2014 - 23:34 | 4343169 AccreditedEYE
AccreditedEYE's picture

Indeed. ZH never, ever learns. Consequences are some other guys problem. Do you honestly believe the rich are going to forfeit wealth for the greater good? They're praying for hyper inflation... They want stocks up another 150%.... from here. Who cares if families will starve? They only care about 1 thing.. Staying on top. That is the only holy grail. Consequences? Since when did people start getting punished for doing the wrong thing?

Sat, 01/18/2014 - 00:01 | 4343235 TeamDepends
TeamDepends's picture

You two go ahead and bend over to lick the boot of your oppressors if that's what floats your boat.  We will continue mocking them, exposing them for the little girly-men that they are.....riding on the coat-tails of their admittedly gigantic forebears....

Sat, 01/18/2014 - 05:29 | 4343554 Drifter
Drifter's picture

Mocking them?  Exposing them?  What has that accomplished?  Answer:  Nothing.

99% of people don't care what politicians and banksters do.  99% of people don't even know what QE is, and don't care what it is.

So go ahead, mock and expose all you want.  You might as well be talking to a wall for all the good it will do.  

And no, there won't be a stock market crash.  Becuase there won't be a bond market crash.  Because they're doing QE.   And no, QE won't stop.

The crash will be in the currency.   USD will lose reserve status and drop rapidly from there.

Sat, 01/18/2014 - 11:06 | 4343642 GetZeeGold
GetZeeGold's picture

 

 

 

none of that matters for those who want to profit from the rising markets.

 

Well OK then.....but at the same time....I wouldn't get too cocky.

 

The year was 2014.....when we finally figured out the fake prosperity would go on forever.....even though a record number of people didn't have jobs.

 

We're working on that last part.

Sat, 01/18/2014 - 12:27 | 4343931 Drifter
Drifter's picture

Who is working on that last part?   Answer: Nobody. 

They don't care about the economy, jobs, nothing. 

Bash Hitler all you want.   He was a nationalist.  He cared about Germany.  He reformed their currency and made it strong again.  He put people to work and  rebuilt their economy after bankers destroyed it. 

None of that is happening in America.  Fed is destroying the dollar to enrich bankers, with govt's approval.  They're looting the economy, not rebuilding it.

That's how I know we're approaching the end of America.  It's just a matter of time, how long they can keep looting before the economy dies completely.

 

Sat, 01/18/2014 - 15:24 | 4344284 HulkHogan
HulkHogan's picture

Jesus, you're taking Hitler's side?

Sat, 01/18/2014 - 15:58 | 4344371 SAT 800
SAT 800's picture

I't not a question of taking Hitler's "side". It's a fact that his controlled economy in Germany utterly defeated the great depression and that Germany came completely out of the depression, whilst Great Britain and the US went on, and on, and on, mired in depression. Hopefully you're adult enough to understand that this remarkable fact, which is little know, is separate from his utterly mad murders and repressions. Recognizing the existence of the one fact does not condone or excuse any of the almost limitless evil caused by this person.

Sat, 01/18/2014 - 17:20 | 4344536 Welder
Welder's picture

What murders ? You mean the Holohoax ?

Sat, 01/18/2014 - 00:20 | 4343279 johngaltfla
johngaltfla's picture

Mehahememehmehmeh.

 

Most fail to learn, like Zimmerman, that there is a floor to the "pain" the banksters are willingto inflict. At SPX 1021ish they will announce a Fed direct stock/corporate/muni bond buying program along with a Federal government absorbtion of all retirement plans on a "voluntary" basis.

 

The floor and game is in. The key is knowing when to sell the ultra short ETFs to cash out and flee.

Sat, 01/18/2014 - 02:40 | 4343434 Son of Loki
Son of Loki's picture

SAN FRANCISCO (Reuters) - Intel Corp plans to reduce its global workforce of 107,000 by about 5 percent this year as the chipmaker, struggling with falling personal-computer sales, shifts focus to faster-growing areas, a company spokesman said on Friday.

The announcement, equivalent to over 5,000 positions, comes a day after Intel posted a fourth-quarter earnings report that did little to dispel concerns about a slowing PC industry.

 

http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140117&i...

Sat, 01/18/2014 - 04:09 | 4343493 Seer
Seer's picture

Economies of scale in reverse...  Eventually the shit will cost a LOT more, and that elevated cost will result in even less "demand"...

Sat, 01/18/2014 - 05:00 | 4343540 q99x2
q99x2's picture

NSA blowback

Sat, 01/18/2014 - 19:52 | 4344835 LooseLee
LooseLee's picture

Ah, probably only part-time, less than minimum wage jobs. What's the big deal?  More profits for the shareholders!

Sat, 01/18/2014 - 07:41 | 4343622 monkeyboy
monkeyboy's picture

Got a date & time on that Galt? ;)

Fri, 01/17/2014 - 23:39 | 4343184 BringOnTheAsteroid
BringOnTheAsteroid's picture

Oh, I don't know, maybe somneone hunts dowen the members of the Fed Reserve one by one.

Sat, 01/18/2014 - 08:46 | 4343674 realWhiteNight123129
realWhiteNight123129's picture

Who is going to stop them? Themselves. The idea that a central bank can not blow is not supported by many historical cases... 

Sat, 01/18/2014 - 14:11 | 4344152 moneybots
moneybots's picture

"Seriously.  Who EXACTLY is going to stop the central bank from doing whatever the fuck it feels like?"

 

It isn't so much who, as it is what.  1+1 ALWAYS = 2.

 

 

 

 

Fri, 01/17/2014 - 23:00 | 4343103 TeamDepends
Fri, 01/17/2014 - 21:26 | 4342921 DoChenRollingBearing
DoChenRollingBearing's picture

I have grave doubts that technical analysis even works at all.  That said, the prediction is scary because of the HUGE debts that he well illustrates.  Look how much the QEs cost...

Gold is something that will help balance a portfolio if the S&P cracks big time.

Fri, 01/17/2014 - 23:43 | 4343191 BringOnTheAsteroid
BringOnTheAsteroid's picture

I think we're all looking in the wrong place. There probably isn't going to be a stock market crash but a societal collapse and war. When that happens no one is going to give a flying fuck about the number that is the NASDAQ or DOW JONES . . . . . . no one will give a flying fuck. This is the shock that is needed to get us all to pull our heads out of our collective asses and start appreciating the important things in life like clean air, clean water, untainted food, a thriving ecosystem, family and friends.

Sat, 01/18/2014 - 04:11 | 4343496 Seer
Seer's picture

There it is!

The relevance of something is only as good as the size of participation, the audience.  If folks stop showing up at the Box Office then the movie ain't going to play for much longer...

Sat, 01/18/2014 - 07:36 | 4343620 BringOnTheAsteroid
BringOnTheAsteroid's picture

It's ironic that we are the ones keeping this shit going - the royal "we" I mean.

Sat, 01/18/2014 - 08:33 | 4343666 GetZeeGold
GetZeeGold's picture

 

 

Thanks for taking credit....but I think it's our grandkids that are actually keeping this going.

Sat, 01/18/2014 - 07:43 | 4343624 monkeyboy
monkeyboy's picture

Sounds a little bearish to me

Sat, 01/18/2014 - 11:02 | 4343814 Livingstrong
Livingstrong's picture

Well said! The only thing I´m not looking forward to is war, the economic/societal collapse....bring it on, I´m ready/prepared!

Sat, 01/18/2014 - 13:54 | 4344113 dontgoforit
dontgoforit's picture

Not as prepared as you think you are.  A wave covers the entire beach.

 

Fri, 01/17/2014 - 20:19 | 4342753 indygo55
indygo55's picture

"Does anyone really think that the Gov will allow the markets to drop more than 3-5% in an Election year?"

 

Uh yeah! Wasn't the last one in 2008 an election year? Duh!!

Fri, 01/17/2014 - 21:19 | 4342911 Uber Vandal
Uber Vandal's picture

Mr. Market did not do too well in 1932 either.

 

 

Fri, 01/17/2014 - 22:47 | 4343086 max2205
max2205's picture

This is great. ..the Fed broke or got rid of the economic cycle. ....oh wait I heard that before

Fri, 01/17/2014 - 23:45 | 4343198 BringOnTheAsteroid
BringOnTheAsteroid's picture

A bullet in the heads of these assholes would be far too a compassionate future for the greed and destruction they reap.

Fri, 01/17/2014 - 23:50 | 4343212 Seize Mars
Seize Mars's picture

You meant sow, right? Reaping is later.

Sat, 01/18/2014 - 01:47 | 4343388 MsCreant
MsCreant's picture

Bunch of reapists...

Fri, 01/17/2014 - 21:00 | 4342875 MeelionDollerBogus
MeelionDollerBogus's picture

like the rising markets of 2006-2009? repeat? Any takers?

Gov was influencing markets decades before that with stimulus & right into the housing boom, so why did markets crash down to 2009 lows? Why? An accident? Stopped leaning on control-P & accidentally crashed the server running GOFO & LIBOR scripts for what numbers to put into the manipulation calls?

Too much porn at the SEC? What was it?

You really don't get it.
Every transaction is being watched. As soon as your take in the market is big enough to hurt you the rigging will change in that moment to hurt you.
It's like paying someone $100 bills to wave their face or their cock at an angry alligator and when you think you can get rich because you never get bit - once you & your buddies are all in - someone workin' for da-boss steps up behind you and KICKS you forward, you and all your buddies.
You really gonna fall for that?

Fri, 01/17/2014 - 21:49 | 4342981 walküre
walküre's picture

crashes are engineered and well controlled or they wouldn't happen

Sat, 01/18/2014 - 00:53 | 4343333 Squid-puppets a...
Squid-puppets a-go-go's picture

remember the PPT?  they managed to stave off the big crash after bear sterns, but they didnt have the power and influence to stop the post lehman plunge.

'2 hours away from the global banking system freezing up in mutual mistrust' - they were the Fed memos from the hours before they announced QE1

they are not omnipotent. they are merely potent

 

Sun, 01/19/2014 - 03:02 | 4345442 MeelionDollerBogus
MeelionDollerBogus's picture

stave off? It looked like a big crash to me. That crash in % terms and in terms of break-evens vs prior years adjusted for any level of inflation you might propose is truth, far defeated the 1987 crash.

They didn't stave it off. They caused it, profited from being short & profited from selling garbage at all time high prices using fraud.

Fri, 01/17/2014 - 23:48 | 4343207 BeanusCountus
BeanusCountus's picture

Hate to admit it, but has a number of points. IF one believes in manipulation can overcome. Sorry though sport, that is not the basis on which i "invest". Not really interested in how people will follow herds. May lose some money in the process. But I will never be convinced that I should do ANYTHING because of something that is ARTIFICIAL has my back.

Sat, 01/18/2014 - 10:19 | 4343758 Black-Man
Black-Man's picture

I guess 2008 wasn't an election year?

Sat, 01/18/2014 - 13:39 | 4344079 moneybots
moneybots's picture

"Does anyone really think that the Gov will allow the markets to drop more than 3-5% in an Election year?"

 

See 2008.  Crashed BIG during an election year.

 

"The FED got the hang of how to keep the markets going higher and they are the ones at the Helm."

The FED has also gotten the hang of how to crash markets. 

Fri, 01/17/2014 - 18:58 | 4342450 fonzannoon
fonzannoon's picture

Count me in for Meh. I am long the market and bearish the human race.

Fri, 01/17/2014 - 19:19 | 4342519 gjp
gjp's picture

Perfect response.  He sees less centralization and less brutality over history? He should get his eyes checked

Sat, 01/18/2014 - 09:26 | 4343680 GetZeeGold
GetZeeGold's picture

 

 

I am long the market and bearish the human race.

 

You should apply for a gig on CNBC.....they really care about people and will have you thinking differently in no time.

Do NOT follow this link or you will be banned from the site!