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These Fake Rallies Will End In Tears: "If People Stop Believing In Central Banks, All Hell Will Break Loose"

Tyler Durden's picture


Submitted by Detlev Schlichter,

Investors and speculators face some profound challenges today: How to deal with politicized markets, continuously “guided” by central bankers and regulators? To what extent do prices reflect support from policy, in particular super-easy monetary policy, and to what extent other, ‘fundamental’ factors? And how is all this market manipulation going to play out in the long run?

It is obvious that most markets would not be trading where they are trading today were it not for the longstanding combination of ultra-low policy rates and various programs of ‘quantitative easing’ around the world, some presently diminishing (US), others potentially increasing (Japan, eurozone). As major US equity indices closed last week at another record high and overall market volatility remains low, some observers may say that the central banks have won. Their interventions have now established a nirvana in which asset markets seem to rise almost continuously but calmly, with carefully contained volatility and with their downside apparently fully insured by central bankers who are ready to ease again at any moment. Those who believe in Schumpeter’s model of “bureaucratic socialism”, a system that he expected ultimately to replace capitalism altogether, may rejoice: Increasingly the capitalist “jungle” gets replaced with a well-ordered, centrally managed system guided by the enlightened bureaucracy. Reading the minds of Yellen, Kuroda, Draghi and Carney is now the number one game in town. Investors, traders and economists seem to care about little else.

“The problem is that we’re not there [in a low volatility environment] because markets have decided this, but because central banks have told us…” Sir Michael Hintze, founder of hedge fund CQS, observed in conversation with the Financial Times (FT, June 14/15 2014). “The beauty of capital markets is that they are voting systems, people vote every day with their wallets. Now voting is finished. We’re being told what to do by central bankers – and you lose money if you don’t follow their lead.”

That has certainly been the winning strategy in recent years. Just go with whatever the manipulators ordain and enjoy rising asset values and growing investment profits. Draghi wants lower yields on Spanish and Italian bonds? – He surely gets them. The US Fed wants higher equity prices and lower yields on corporate debt? – Just a moment, ladies and gentlemen, if you say so, I am sure we can arrange it. Who would ever dare to bet against the folks who are entrusted with the legal monopoly of unlimited money creation? “Never fight the Fed” has, of course, been an old adage in the investment community. But it gets a whole new meaning when central banks busy themselves with managing all sorts of financial variables directly, from the shape of the yield curve, the spreads on mortgages, to the proceedings in the reverse repo market.

Is this the “new normal”/”new neutral”? The End of History and the arrival of the Last Man, all over again?

The same FT article quoted Salman Ahmed, global bond strategist at Lombard Odier Investment Managers as follows: “Low volatility is the most important topic in markets right now. On the one side you have those who think this is the ‘new normal’, on the other are people like me who think it cannot last. This is a very divisive subject.”

PIMCO’s Bill Gross seems to be in the “new normal” camp. At the Barron’s mid-year roundtable 2014 (Barron’s, June 16, 2014) he said: “We don’t expect the party to end with a bang – the popping of a bubble. […] We have been talking about what we call the New Neutral – sluggish but stable global growth and continued low rates.”

In this debate I come down on the side of Mr. Ahmed (and I assume Sir Michael). This cannot last, in my view. It will end and end badly. Policy has greatly distorted markets, and financial risk seems to be mis-priced in many places. Market interventions by central banks, governments and various regulators will not lead to a stable economy but to renewed crises. Prepare for volatility!

Bill Gross’ expectation of a new neutral seems to be partly based on the notion that persistently high indebtedness contains both growth and inflation and makes a return to historic levels of policy rates near impossible. Gross: “…a highly levered economy can’t withstand historic rates of interest. […] We see rates rising to 2% in 2017, but the market expects 3% or 4%. […] If it is close to 2%, the markets will be supported, which means today’s prices and price/earnings are OK.”

Of course I can see the logic in this argument but I also believe that high debt levels and slow growth are tantamount to high degrees of risk and should be accompanied with considerable risk premiums. Additionally, slow growth and substantial leverage mean political pressure for ongoing central bank activism. This is incompatible with low volatility and tight risk premiums. Accidents are not only bound to happen, they are inevitable in a system of monetary central planning and artificial asset pricing.

Low inflation, low rates, and contained market volatility are what we should expect in a system of hard and apolitical money, such as a gold standard. But they are not to be expected – at least not systematically and consistently but only intermittently – in elastic money systems. I explain this in detail in my book Paper Money Collapse – The Folly of Elastic Money. Elastic money systems like our present global fiat money system with central banks that strive for constant (if purportedly moderate) inflation must lead to persistent distortions in market prices (in particular interest rates) and therefore capital misallocations. This leads to chronic instability and recurring crises. The notion that we might now have backed into a gold-standard-like system of monetary tranquility by chance and without really trying seems unrealistic to me, and the idea is even more of a stretch for the assumption that it should be excessive debt – one of elastic money’s most damaging consequences – that could, inadvertently and perversely, help ensure such stability. I suspect that this view is laden with wishful thinking. In the same Barron’s interview, Mr. Gross makes the statement that “stocks and bonds are artificially priced,” (of course they are, hardly anyone could deny it) but also that “today’s prices and price/earnings are OK.” This seems a contradiction to me. Here is why I believe the expectation of the new neutral is probably wrong, and why so many “mainstream” observers still sympathize with it.

1. Imbalances have accumulated over time. Not all were eradicated in the recent crisis. We are not starting from a clean base. Central banks are now all powerful and their massive interventions are tolerated and even welcome by many because they get “credited” with having averted an even worse crisis. But to the extent that that this is indeed the case and that their rate cuts, liquidity injections and ‘quantitative easing’ did indeed come just in time to arrest the market’s liquidation process, chances are these interventions have sustained many imbalances that should also have been unwound. These imbalances are probably as unsustainable in the long run as the ones that did get unwound, and even those were often unwound only partially. We simply do not know what these dislocations are or how big they might be. However, I suspect that a dangerous pattern has been established: Since the 1980s, money and credit expansion have mainly fed asset rallies, and central banks have increasingly adopted the role of an essential backstop for financial markets. Recently observers have called this phenomenon cynically the “Greenspan put” or the “Bernanke put” after whoever happens to lead the US central bank at the time but the pattern has a long tradition by now: the 1987 stock market crash, the 1994 peso crisis, the 1998 LTCM-crisis, the 2002 Worldcom and Enron crisis, and the 2007/2008 subprime and subsequent banking crisis. I think it is not unfair to suggest that almost each of these crises was bigger and seemed more dangerous than the preceding one, and each required more forceful and extended policy intervention. One of the reasons for this is that while some dislocations get liquidated in each crisis (otherwise we would not speak of a crisis), policy interventions – not least those of the monetary kind – always saved some of the then accumulated imbalances from a similar fate. Thus, imbalances accumulate over time, the system gets more leveraged, more debt is accumulated, and bad habits are being further entrenched. I have no reason to believe that this has changed after 2008.


2. Six years of super-low rates and ‘quantitative easing’ have planted new imbalances and the seeds of another crisis. Where are these imbalances? How big are they? – I don’t know. But I do know one thing: You do not manipulate capital markets for years on end with impunity. It is simply a fact that capital allocation has been distorted for political reasons for years. Many assets look mispriced to me, from European peripheral bond markets to US corporate and “high yield” debt, to many stocks. There is tremendous scope for a painful shake-out, and my prime candidate would again be credit markets, although it may still be too early.


3. “Macro-prudential” policies create an illusion of safety but will destabilize the system further. – Macro-prudential policies are the new craze, and the fact that nobody laughs out loud at the suggestion of such nonsense is a further indication of the rise in statist convictions. These policies are meant to work like this: One arm of the state (the central bank) pumps lots of new money into the system to “stimulate” the economy, and another arm of the state (although often the same arm, namely the central bank in its role as regulator and overseer) makes sure that the public does not do anything stupid with it. The money will thus be “directed” to where it can do no harm. Simple. Example: The Swiss National Bank floods the market with money but stops the banks from giving too many mortgage loans, and this avoids a real estate bubble. “Macro-prudential” is of course a euphemism for state-controlled capital markets, and you have to be a thorough statist with an iron belief in central planning and the boundless wisdom of officers of the state to think that this will make for a safer economy. (But then again, a general belief in all-round state-planning is certainly on the rise.) The whole concept is, of course, quite ridiculous. We just had a crisis courtesy of state-directed capital flows. For decades almost every arm of the US state was involved in directing capital into the US housing market, whether via preferential tax treatment, government-sponsored mortgage insurers, or endless easy money from the Fed. We know how that turned out. And now we are to believe that the state will direct capital more sensibly? — New macro-“prudential” policies will not mean the end of bubbles but only different bubbles. For example, eurozone banks shy away from giving loans to businesses, partly because those are costly under new bank capital requirements. But under those same regulations sovereign bonds are deemed risk-free and thus impose no cost on capital. Zero-cost liquidity from the ECB and Draghi’s promise to “do whatever it takes” to keep the eurozone together, do the rest. The resulting rally in Spanish and Italian bonds to new record low yields may be seen by some as an indication of a healing Europe and a decline in systemic risk but it may equally be another bubble, another policy-induced distortion and another ticking time bomb on the balance sheets of Europe’s banks.


4. Inflation is not dead. Many market participants seem to believe that inflation will never come back. Regardless of how easy monetary policy gets and regardless for how long, the only inflation we will ever see is asset price inflation. Land prices may rise to the moon but the goods that are produced on the land never get more expensive. – I do not believe that is possible. We will see spill-over effects, and to the extent that monetary policy gets traction, i.e. leads to the expansion of broader monetary aggregates, we will see prices rise more broadly. Also, please remember that central bankers now want inflation. I find it somewhat strange to see markets obediently play to the tune of the central bankers when it comes to risk premiums and equity prices but at the same time see economists and strategists cynically disregard central bankers’ wish for higher inflation. Does that mean the power of money printing applies to asset markets but will stop at consumer goods markets? I don’t think so. – Once prices rise more broadly, this will change the dynamic in markets. Many investors will discount points 1 to 3 above with the assertion that any trouble in the new investment paradise will simply be stomped out quickly by renewed policy easing. However, higher and rising inflation (and potentially rising inflation expectations) makes that a less straightforward bet. Inflation that is tolerated by the central banks must also lead to a re-pricing of bonds and once that gets under way, many other assets will be affected. I believe that markets now grossly underestimate the risk of inflation.

Some potential dislocations

Money and credit expansion are usually an excellent source of trouble. Just give it some time and imbalances will have formed. Since March 2011, the year-over-year growth in commercial and industrial loans in the US has been not only positive but on average clocked in at an impressive 9.2 percent. Monetary aggregate M1 has been growing at double digit or close to double-digit rates for some time. It presently stands at slightly above 10 percent year over year. M2 is growing at around 6 percent.

U.S. Commercial & Industrial Loans (St. Louis Fed - Research)

U.S. Commercial & Industrial Loans (St. Louis Fed – Research)

None of this must mean trouble right away but none of these numbers indicate economic correction or even deflation but point instead to re-leveraging in parts of the US economy. Yields on below-investment grade securities are at record lows and so are default rates. The latter is maybe no surprise. With rates super-low and liquidity ample, nobody goes bust. But not everybody considers this to be the ‘new normal’: “We are surprised at how ebullient credit markets have been in 2014,” said William Conway, co-founder and co-chief executive of Carlyle Group LP, the US alternative asset manager (as quoted in the Wall Street Journal Europe, May 2-4 2014, page 20). “The world continues to be awash in liquidity, and investors are chasing yield seemingly regardless of credit quality and risk.”

“We continually ask ourselves if the fundamentals of the global credit business are healthy and sustainable. Frankly, we don’t think so.”

1 trillion is a nice round number

Since 2009 investors appear to have allocated an additional $1trn to bond funds. In 2013, the Fed created a bit more than $1trn in new base money, and issuance in the investment grade corporate bond market was also around $1trn in 2013, give and take a few billion. A considerable chunk of new corporate borrowing seems to find its way into share buybacks and thus pumps up the equity market. Andrew Smithers in the Financial Times of June 13 2014 estimates that buybacks in the US continue at about $400bn per year. He also observes that non-financial corporate debt (i.e. debt of companies outside the finance sector) “expanded by 9.2 per cent over the past 12 months. US non-financial companies’ leverage is now at a record high relative to output.”


Most investors try to buy cheap assets but the better strategy is often to sell expensive ones. Such a moment in time may be soon approaching. Timing is everything, and it may still be too early. “The trend is my friend” is another longstanding adage on Wall Street. The present bull market may be artificial and already getting long in the tooth but maybe the central planners will have their way a bit longer, and this new “long-only” investment nirvana will continue. I have often been surprised at how far and for how long policy makers can push markets out of kilter. But there will be opportunities for patient, clever and nimble speculators at some stage, when markets inevitably snap back. This is not a ‘new normal’ in my view. It is just a prelude to another crisis. In fact, all this talk of a “new normal” of low volatility and stable markets as far as the eye can see is probably already a bearish indicator and a precursor of pending doom. (Anyone remember the “death of business cycles” in the 1990s, or the “Great Moderation” of the 2000s?)

Investors are susceptible to the shenanigans of the manipulators. They constantly strive for income, and as the central banks suppress the returns on many mainstream asset classes ever further, they feel compelled to go out into riskier markets and buy ever more risk at lower yields. From government bonds they move to corporate debt, from corporate debt to “high yield bonds”, from “high yield” to emerging markets – until another credit disaster awaits them. Investors thus happily do the bidding for the interventionists for as long as the party lasts. That includes many professional asset managers who naturally charge their clients ongoing management fees and thus feel obliged to join the hunt for steady income, often apparently regardless of what the ultimate odds are. In this environment of systematically manipulated markets, the paramount risk is to get sucked into expensive and illiquid assets at precisely the wrong time.

In this environment it may ultimately pay to be a speculator rather than an investor. Speculators wait for opportunities to make money on price moves. They do not look for “income” or “yield” but for changes in prices, and some of the more interesting price swings may soon potentially come on the downside, I believe. As they are not beholden to the need for steady income, speculators should also find it easier to be patient. They should know that their capital cannot be employed profitably at all times. They are happy (or should be happy) to sit on cash for a long while, and maybe let even some of the suckers’ rally pass them by. But when the right opportunities come along they hope to be nimble and astute enough to capture them. This is what macro hedge funds, prop traders and commodity trading advisers traditionally try to do. Their moment may come again.

As Sir Michael at CQS said: “Maybe they [the central bankers] can keep control, but if people stop believing in them, all hell will break loose.”

I couldn’t agree more.


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Tue, 06/24/2014 - 15:15 | 4890316 PartysOver
PartysOver's picture

Just let me know when the tipping point has arrived.  Ponzi's can go on for a long time.

Tue, 06/24/2014 - 15:20 | 4890339 Pinto Currency
Pinto Currency's picture



Gold price suppression (and thus interest rate suppression) started accelerating in 1993 leading to the current chaos today.

Tue, 06/24/2014 - 15:34 | 4890408 NotApplicable
NotApplicable's picture

Yet another false dichotomy.

"Market interventions by central banks, governments and various regulators will not lead to a stable economy but to renewed crises. Prepare for volatility!"

Only a fool would accept the narrative that intervention occurs to produce a stable economy. Which leads to the wrong conclusion that everything is going to break, AS IF IT WAS REAL IN THE FIRST PLACE.

More crises = more intervention = LESS volatility

Sure, they might manage to break shit beyond their ability to influence, but there's plenty of other things to scape-goat it on, such as war. Not to mention, they'll lock the fucking exits first with a bank holiday.

Tue, 06/24/2014 - 15:48 | 4890471 Pinto Currency
Pinto Currency's picture


They cannot print oil, food, or gold and while they have traded these with paper derivatives, this can reach a limit.

Volatility in things that can be printed may remain low indefinitely, but the real goods can become very volatile as the paper pricing creates shortages.

Tue, 06/24/2014 - 15:54 | 4890492 madcows
madcows's picture

nope.  but they can print paper gold, Food stamps and heating oil credits.  I'm long government subsidies.

Tue, 06/24/2014 - 16:15 | 4890525 Pinto Currency
Pinto Currency's picture


There is gong to be scarcity in most real things including food because of market price and interest rate manipulation.


Listen to Carney talking about the BofE manipulating markets:


Tue, 06/24/2014 - 17:41 | 4890894 Buzz Fuzzel
Buzz Fuzzel's picture

It does not matter what the people believe. 

Bretton Woods Agreement
Tue, 06/24/2014 - 15:21 | 4890350 TideFighter
TideFighter's picture

"You can't fool me, there ain't no Sanity Clause!"

Tue, 06/24/2014 - 18:19 | 4891029 Pooper Popper
Pooper Popper's picture

I dont believe in the Fucking bank!

Tue, 06/24/2014 - 15:16 | 4890323 Timmay
Timmay's picture

Hell or TRUTH??

Tue, 06/24/2014 - 15:16 | 4890324 pods
pods's picture

All hell is going to break loose whether people believe in central banks or not.

Math says so.


Tue, 06/24/2014 - 15:21 | 4890343 Winston Churchill
Winston Churchill's picture

Math is so 20th century,so be a good man and go feed Mr.

Yellens unicorn,

Tue, 06/24/2014 - 15:25 | 4890368 SheepDog-One
SheepDog-One's picture

Math? OH wait, you must mean 'mafs'

Tue, 06/24/2014 - 15:22 | 4890354 LawsofPhysics
LawsofPhysics's picture

^^^this, what any one species "thinks" or "believes" really is irrelevant in the grand scheme of things to come.

Tue, 06/24/2014 - 15:29 | 4890388 Dr. Engali
Dr. Engali's picture

Not the new math, common core math defies all logic.

Tue, 06/24/2014 - 16:35 | 4890646 813kml
813kml's picture

The new math is fuzzier than Yellen's lip.

Tue, 06/24/2014 - 15:18 | 4890332 fonzannoon
fonzannoon's picture

who are these "people" that everyone refers to that will suddenly lose faith in central banks?

Tue, 06/24/2014 - 15:25 | 4890367 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture
"If People Stop Believing In Central Banks, All Hell Will Break Loose"


If there is one thing Ive learned over the last eight years or so of my life, its that this is a pretty damned big "IF".  One central problem with the gold bug types is they assume that the system runs on trust until people see there is reason to distrust at which point things collapse.


But in reality, people trust because at first they are too ignorant to understand the system and so trust comes from the calmness they observe in the well dressed people they see around them.  Later, they trust because the alternative is blind fear.  The benefit they might obtain from panicing and protecting themselves is psychologically outweighed by the mental burden of having to question everything they see.


So I predict that even when grocery stores are stocked only 50% of the time and when gas is not always available and when the official inflation rate hits 20%, people will still trust the authorities when push comes to shove.  People just don't make decisions based on evidence.

Tue, 06/24/2014 - 15:34 | 4890407 TideFighter
TideFighter's picture

I gave you a thnumbs up just based on the factual observances I have made. If I told someone at the beach to "not go into the water, someone was struck by lightning just 5 minutes ago", they still shuffle down to the water. Amazing how dumb we are. even in the wake of a previous disaster. Like building homes where the old one flooded out. Not wearing a helment on a motorcycle after an accident with head trauma. Like electing Zero for the second term. Or...keep eating when you weigh 300+ pounds.

Tue, 06/24/2014 - 15:40 | 4890428 Oldrepublic
Oldrepublic's picture

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London  1863.


Tue, 06/24/2014 - 18:58 | 4891161 Mercuryquicksilver
Mercuryquicksilver's picture

That quote demonstrates the colusion between banking cartel and government. However, it is atributed to John Sherman of  "Sherman Anti-Trust" fame and not any Rothschild IF it is in fact an actual quote and not a forgery as some people think. Either way, it sums up how things were 150 years ago and remain today.


In other words, Gold and Silver only per Article 1 Section 10. Otherwise death.

Tue, 06/24/2014 - 15:42 | 4890448 localspaced
localspaced's picture

Spot on, mate.

A system built on ignorance is much more stable than one built on trust. 

"Fitting in isn't about what you know... Its what you dont know that makes you team player" (quote by sole).

Anyway, its gonna be a hell of long time before people 'wake up' as you say in proper conspiracy lingo. And most of them are gonna want to go right back to sleep. 

There's not going to be a systemic crash, just a slow crumble and fading into obsoletion. 

Tue, 06/24/2014 - 15:54 | 4890486 Bemused Observer
Bemused Observer's picture

If you mean society as a whole, yes, I agree. A long fade-out, un-noticed by most living through it.
But the financial system can collapse apart from the greater society. And that, I believe, will be hard and fast,
Society itself will muddle through much longer, trying on other currencies and arrangements, each more ludicrous than the one it replaces.

Tue, 06/24/2014 - 15:44 | 4890460 halfasleep
halfasleep's picture

I think I agree. I don't see the FSA going zombie apoc, but moreso being herded straight to their camps for fema fries and american idol. that's all they need.

Tue, 06/24/2014 - 18:13 | 4891004 swmnguy
swmnguy's picture

I'm not sure how much "Trust" has ever had to do with anything. People have to feed themselves and get stuff done with what they have.  I doubt medieval serfs "trusted" their local aristocrat, but they had to do things his way or his armed thugs would kill them or make them leave, and there wasn't anyplace they could go where anyone would be happy to see them, much less feed them.  So they stuck with what they knew and suffered when things went badly or their local lord was a fool or a bastard; or they prospered when things went well or they lucked out and got a good and wise lord.

I would agree that at the root of it, people are only ruled by their own consent, and our system only works to the extent that people have faith in it.  But that's on a higher conceptual level than most people think of.  When things are a mess and everyone knows the authorities are not to be trusted, most people usually say, "Well, what are you going to do?" and shrug, and everyone around them shares a bitter smile.  If anyone says, "What are we going to do?  Let's chop off the duke's head, for starters, and then start doing things the right way we all know how to do," that person is lucky to be ignored.

Tue, 06/24/2014 - 15:28 | 4890381 Dr. Engali
Dr. Engali's picture

It's hard to 'earn' 2 and 20 when the fed drives everything to the point where your return is zero.

Tue, 06/24/2014 - 17:45 | 4890904 Buzz Fuzzel
Buzz Fuzzel's picture

Exactly.  Nothing will happen until the "people" running the central banks decide to forget the Bretton Woods Agreement 

and go it on their own.  Precious metals re-hypo unwind might be the trigger event.

Tue, 06/24/2014 - 15:19 | 4890337 Soul Glow
Soul Glow's picture

Faith and credit you can believe in.

Tue, 06/24/2014 - 15:20 | 4890340 ghostfaceinvestah
ghostfaceinvestah's picture

It's not just belief - the Fed directly manipulated the equity markets in 2009 and 2010, IMHO.  Some of those late day stick saves were way too suspicious.

Tue, 06/24/2014 - 15:21 | 4890345 LawsofPhysics
LawsofPhysics's picture

Commercial "liars" loans to buy back stock - "winning". 

Tue, 06/24/2014 - 15:27 | 4890373 Winston Churchill
Winston Churchill's picture

Heard on the radio this AM;Business Funding corp.

Upto $1m, no collateral,no credt check,any pupose.

This is not going to end well,soon.

Tue, 06/24/2014 - 15:32 | 4890398 pods
pods's picture

Sweet, now I can become a painter.  :)


Tue, 06/24/2014 - 16:02 | 4890524 TideFighter
TideFighter's picture

Not the way Business Funding works...all based upon legitimate gross sales on bank statements or from the business' credit card processor. I send a portion of my investments that way, and letting you in on a little secret - there is no better way to make a good return.

Tue, 06/24/2014 - 16:16 | 4890581 Winston Churchill
Winston Churchill's picture

Never rang to ask, so they are basically factoring your credit card receipts ?

Rather them than me.I remember only too well what happened back in

2008/9.I had to write off $25k as uncollectable.

Tue, 06/24/2014 - 15:21 | 4890349 madcows
madcows's picture

Should I max out my credit, and get a loan to buy the foreclosed place at the end of the road?

I need somewhere to park my money where I can get a RoR greater than 0.1%.

Tue, 06/24/2014 - 15:21 | 4890352 SheepDog-One
SheepDog-One's picture mean there are actually still people besides central bankers who believe in central banks? Who are these idiots?

Tue, 06/24/2014 - 15:25 | 4890370 Soul Glow
Soul Glow's picture

Dow dropping like a rock, and on a Tuesday.

Can I get an amen?!

Tue, 06/24/2014 - 15:41 | 4890440 deflator
deflator's picture

 And VIX is ripping 

Tue, 06/24/2014 - 15:36 | 4890420 Dr. Engali
Dr. Engali's picture

The honey boo boo watchers, in other words 99% of the American population.

Tue, 06/24/2014 - 15:23 | 4890357 Rainman
Rainman's picture

Grandma Yellen is chairsataness for a reason. Who wouldn't have confidence in that lil ol grandma in Birkenstocks...?? Brilliant move by the Boyz I say !

Tue, 06/24/2014 - 15:27 | 4890374 Soul Glow
Soul Glow's picture

And when the markets fall apart what will we do?  Demonize a sweet old lady that looks like the grandma down the street?  What would we be if we were to hate an old lady?  Shame on us if that ever happens!

Tue, 06/24/2014 - 15:31 | 4890397 Rainman
Rainman's picture

... it would feel like hanging Aunt Bee

Tue, 06/24/2014 - 15:23 | 4890361 10mm
10mm's picture

Ouside of ZH, I come upon no one who mentions the fraud Central Bank. But i get fuckin sports shit talk, what you doing this weekend and all the other meaningless shit talk. These people id like to meet one day outside this ZH.

Tue, 06/24/2014 - 15:37 | 4890415 Soul Glow
Soul Glow's picture

The first rule of Fight Club is....

It is normal for people to seek comfort and pleasure above all else, even if it is at the behest of other souls; animals, plants, and even other humans will be burned, torched, berated, and killed if that means warmth and a full belly for the individual.

Thus why no one wants reality to set in.  If America realized they have the easiest lifestyle ever seen in the history of the planet (Roman land owners were expected to serve in the military) due to cheap labor from the East and cheap oil from the Mid east, the reserve currency, and for no other reasons, they would panic, rush to the exits, and the Fed - and the "science" of economics with it - would lose all credability.

Reality will set in, but not before the Fed owns all assets, from bank cash reserves to mortgages to the souls of all Americans.

Tue, 06/24/2014 - 15:38 | 4890429 NotApplicable
NotApplicable's picture

Worse yet, if you do happen upon them, they're spouting the gospel as per CNBS, et al.

Tue, 06/24/2014 - 15:31 | 4890394 Yen Cross
Yen Cross's picture

    The only way banks can stay alive with rates @ 2.00 % is for the central banks to continue subsidizing them through their various money printing schemes.

   Bill Gross is full of crap. Just the other day he was talking about scaling out of European bonds. What does that tell you about where Bill"caugh caugh" Gross thinks rates are going?

Tue, 06/24/2014 - 15:37 | 4890425 buzzsaw99
buzzsaw99's picture

agree. gross doesn't know shit. all these years he was the beneficiary of a bond bull market and a cozy relationship with the fed. take those two away and he is below average in every way.

Tue, 06/24/2014 - 15:35 | 4890411 holgerdanske
holgerdanske's picture

They can continue this for a long time. They are buying assest with freshly printed money. So instead of seeing assest appreciate in price,we are actually seeing the lowering of the value of fiat money. That is all the stockmarket is telling at the moment. The people have not yet cottoned on to that, but when they do, they will demand even more for thier shares, and this will continue until all shares are owned by the reservebanks, OR, until people say, look, if I sell this, I want real money for it, I want gold.

That is when confidence will be lost, and that is the only logical end we can expect from this, unless money printing is stopped, which I think is not likely, barring a revolt.

Tue, 06/24/2014 - 15:39 | 4890433 TabakLover
TabakLover's picture

Da people need to first realize there is a Central Bank to stop believing in.  Most have no idea.

Wed, 06/25/2014 - 14:31 | 4891335 Radical Marijuana
Radical Marijuana's picture

Yeah, the overwhelming vast majority of "We the People" have become Zombie Sheeple, who act like incompetent idiots, because they have been successfully conditioned to not want to know. (Moreover, for a lot of them that has actually become organic brain damage, that make it impossible for them to learn, even if they miraculously started to want to learn.)

The existence of central banks was due to the best organized gang of criminals, the biggest gangsters, the banksters, applying the methods of organized crime to the political processes, in order to achieve systems of legalized lies, backed by legalized violence, which the banksters benefited from to a fantastic degree. They were then able to reinvest the profits from those legally enforced frauds in dominating the school systems, and mass media, etc. ... As a result, the existence of central banks its itself the expression of the triumph of organized crime, which has made "governments" become the biggest form of organized crime, controlled by the best organized gangs of criminals.

The banksters promote their view of the political economy as the biggest bullies' bullshit, while the mainstream economists have become intellectual mercenaries whose messages the banksters approve of. For people to stop believing in central banks would be for them to stop believing in the biggest bullies' bullshit social stories, which almost totally dominate civilization at the present time. Therefore, it is correct to say that then "all hell would break loose!"

Money is measurement backed by murder. The debt controls depend on the death controls. If the bullshit about central banks starts to fail, as it looks like it eventually must, because their debt slavery systems have generated numbers which have become debt insanities, then the most probable results are that will then provoke a series of death insanity events.

The currently established political economy is built on the foundation of enforced frauds, which automatically get worse, faster, due to the structure of that system. Therefore, people will eventually be forced to face the facts that those systems are spinning out of control, because they are generating debt insanity numbers. However, the most probable result to those psychotic breakdowns of belief in bullshit are series of social storms, causing there to develop death insanities.

It is a cliche that after the banksters ran their pyramid schemes to the point of collapse in the past, then they caused wars. However, their current systems of globalized electronic frauds, backed by the threat of the force of atomic bombs, present those possibilities in ways that are trillions of times more insane than anything that ever previously existed in human history. Almost nobody understands the full extent of the degree to which our civilization has become criminally insane, and almost nobody can imagine what the full effects of the eventual psychotic breakdowns of the established systems of enforced frauds will finally become.

Meanwhile, there is no doubt that the overwhelming vast majority of people know almost nothing about any of that, and do not want to know. Therefore, it will take far worse slaps in the face to get their attention, which by then will be too little, too late, and too trivial to matter much then anyway. Almost nobody, even among the small groups of educated intellectuals that are aware of the facts, has much of a clue what would really happen if the current systems of electronic frauds backed by the force of atomic bombs break down. Indeed, the main thing keeping them going is the terrifying prospects of that happening, as well as that nobody has any genuinely good enough ideas about to better resolve those problems, or certainly not solutions that other Black Sheeple intellectuals agree with in large enoug numbers, and surely even less amongst the general population of Zombie Sheeple.

The basic problems are that money is measurement backed by murder, while that is deliberately denied or not discussed by almost everyone, while the actually established systems operate through measurements based on the maximum possible frauds, where the public "money" supply is made out nothing as debts by private banks, while that fraud is enforced by governments, which murder people to back that up in ways which are explained and defended by people who are the best professional liars and immaculate hypocrites.

The established systems are debt controls backed by death controls, wherein those debt controls are based on the maximum frauds, and those death controls are based on the maximum deceits. Therefore, the emergence of more radical truths, IF enough people stopped believing in the bullshit spouted by the central banks, and their intellectual mercenaries, would necessarily push the radical truth forward, which was always that money was measurement backed by murder. Therefore, IF more radical truth is ever made more publicly recognized, that the central banking system was the result of the application of the methods of organized crime to control governments, in order to enforce frauds, as the foundation of the current political economy, then the out of control debt insanities numbers which will be driving that to happen will surely result in provoking out of control death insanities, or that "all hell will break lose."

The main historical difference this time is that technologies have made those problems become trillions of times BIGGER! Therefore, the vast majority of people are even more profoundly ignorant of that, while even the relatively few educated intellectuals who may understand the monetary systems, still tend to deliberate ignore the militarism that made and maintained the monetary system. THE BASIC PROBLEM UNDERNEATH EVERYTHING ELSE IS HOW TO OPERATE MURDER SYSTEMS AFTER THE DEVELOPMENT OF WEAPONS OF MASS DESTRUCTION?

My theoretical answer is that we should go through profound paradigm shifts via intellectual scientific revolutions, which then apply to politics, and especially to the monetary and military systems. However, practically nobody in the general population has the slightest clue about that, while the majority of the educated intellectuals who understand the political economy also tend to be quite deliberately ignorant of the bigger environmental ecology problems.

Human history has selected for success in warfare to be based on deceits, upon which basis was built a political economy based on enforced frauds. Thousands of years of that, plus awesome advances in some areas of technology, has resulted in a civilization which is dominated by runaway criminal insanities. In that context, it is hard to imagine how there could be any other "corrections" than for there to be psychotic breakdowns and death insanities, provoked by the runaway central banksters' debt insanities reaching their breaking points, at exponentially accelerating rates.

The fact that more educated intellectuals, such as publish MOAR critical comments about the central banks on Zero Hedge, indicates how we are getting closer to those psychotic breaking points, where the FACT that the entire economy is based on ENFORCED FRAUDS is becoming more blatantly obvious. However, even as that is happening, most of those educated intellectuals continue to propose old fashioned ideological "solutions" to those problems, which "solutions" are not remotely close to being in the right ball park compared to the magnitude of the problems of globalized electronic frauds, backed by atomic bombs.

Meanwhile, there is no doubt about the background social facts that most people know nothing about the central banks, other than superficially still presuming to "know" things which are mistaken bullshit, and they do not want to know any better. Therefore, almost all of the educated intellectual discussions of these problems on Web sites like Zero Hedge has, so far, done nothing to change the overall situation of runaway enforced frauds controlling civilization.

Tue, 06/24/2014 - 15:42 | 4890450 Bemused Observer
Bemused Observer's picture

It can last awhile, but it will end quick. It's like a Mexican standoff, three guys with guns. No one wants to be the FIRST to shoot, so they can stand there a long time, hours and hours. But once someone takes that first shot, the second shooter takes him out and the thing ends in seconds.
No one in the financial world wants to be the one that takes that first shot. But eventually SOMEONE will, and the instant they do the other bullets will be fired almost at once. It will happen too fast to be managed.

Tue, 06/24/2014 - 15:44 | 4890459 GubbermintWorker
GubbermintWorker's picture

I'll stick to being a spectator as opposed to a speculator.

Tue, 06/24/2014 - 15:45 | 4890463 shouldvekilledthem
shouldvekilledthem's picture

Problem #1: People are not even aware of central banks and their role in the fiat ponzies.

Tue, 06/24/2014 - 19:53 | 4891341 Radical Marijuana
Radical Marijuana's picture

Yeah, I agree, as stated in my reply above.

Tue, 06/24/2014 - 15:46 | 4890467 PresidentCamacho
PresidentCamacho's picture

I've still stacking, have to get my post collapse political warchest ready.

Tue, 06/24/2014 - 15:50 | 4890481 eddiebe
eddiebe's picture

Sitting in cash may become a very serious problem as well.

Tue, 06/24/2014 - 18:15 | 4891012 swmnguy
swmnguy's picture

Indeed. It chafes and can host some nasty infectious organisms.

Tue, 06/24/2014 - 16:01 | 4890518 Ban KKiller
Ban KKiller's picture

Meanwhile, in the real world, freed a sparrow that got caught in the chicken wire. Just a young one that now knows all about chicken wire. 

I sure would like to read about more banksters jumping off of roofs. See, I am not that nice. 

Tue, 06/24/2014 - 17:21 | 4890846 GubbermintWorker
GubbermintWorker's picture

Not an English Sparrow I hope. The little bastards.

Tue, 06/24/2014 - 18:16 | 4891020 swmnguy
swmnguy's picture

What's the airspeed velocity of an unladen English Sparrow?

Tue, 06/24/2014 - 16:26 | 4890618 Peter Pan
Peter Pan's picture

This world is split in two. Those that have rising assets and ignore the reality of the math that is approaching just as the Titanic ignored icebergs, and those that are clinging to their income like the wretched passenger clings to the mast of a sinking ship.

We are all f...ed and the sand in the hour glass says so.

The dry land of silver and gold is just about the safest place to be even though the puppet mssters make every attempt to make it appear quite unsexy.

Tue, 06/24/2014 - 16:37 | 4890650 q99x2
q99x2's picture

I believe central banks are there to steal everyone's money. Then they will use that money to kill their victems.

Tue, 06/24/2014 - 17:05 | 4890732 RaceToTheBottom
RaceToTheBottom's picture

Maybe they [the central bankers] can keep control, but if people stop believing in them,.."

That is exactly what gold/silver is.  A statement of non belief in the Central Banksters

Tue, 06/24/2014 - 18:46 | 4891125 shouldvekilledthem
shouldvekilledthem's picture

Don't forget bitcoin. It's basically the anti-matter of the current system. 

Tue, 06/24/2014 - 19:54 | 4891344 Radical Marijuana
Radical Marijuana's picture

I disagree, cryptocurrencies are nothing more than parasites on top of parasites. It is a gross exaggeration to say they are as powerful as "anti-matter."

Tue, 06/24/2014 - 18:20 | 4890850 falak pema
falak pema's picture

The schizophrenia of "free markets" has got us  where we are.

The reality is that the US oligarchy; those who built corporate America that has constantly run the state via surrogate leaders; --except during the FDR years which spawned a strong state-- after the trauma of 1929 and the collapse of the then financial oligarchy-- came back to power in the new form of the post WW2 and post Cuban crisis MIC controlled Oligarchy, on Aldous Huxley day; when they killed the last son of FDR's model of democracy and hi-jacked Pax Americana to become the nation of permanent asymmetric wars and then of financial hegemony based on petrodollars and US might, bolstered  to the myth of WS pseudo-scientific monetary hype of Chicago's Hogwarts school. 

Now that this new Reagan concocted, outsourced, slave labour endorsed, NWO enhanced, "civilizaton vs the wretched" cold blooded dystopian world is exploding in our faces, the false nosed neo cons and their MSM shills want to resuscitate the "never-never land" dream of halcyon free markets, the same that reigned without checks and balances since Glass Steagall was repealed.

The Oligarchy snake wants to shed its old skin ! 

The CBs are just the paid lackeys of the Oligarchy financial/industrial cabal nothing else. Don't blame the lackey blame the master; the Oligarchy capitalistic cabal; rentier class getting richer by the day.

We are indeed now totally schizophrenic here on the Hedge. We blame the Oligarchy and yet we cherish their greatest creation : the Great Gatsby myth of free markets. 

You can't love Caesar's concoction of imperial hegemony and hate his crossing the Rubicon to destroy the inefficient avatar of the Republic; 'Cos one is the son of the other. Father and son they be ONE in their destruction of the incarnation of Enlightenment and general good, both in old as in new Rome. (Caesar today is the Financial cum political crony US oligarchy).

If you want the rule of law you need the state to uphold the Republic, for it  to be in the hands of people who respect the law and who do not consider free markets as the temple of Jerusalem. Its a myth like that obscurantist creation that launched the "God wills it" Crusader meme; another pipe dream as toxic as the free market myth. Both worked for special interest groups! History rhymes over a two thousand year time line, again and again,  in western lands!

GWB, in his passage as most powerful icon of Pax Americana's unilateral and despotic power, managed to incarnate both the evil of the Crusader dogma; (reviving as inevitable knee jerk to his mad  dogmatic hubris its zombified twin brother of jihadist neurotica); as well the false belief in Reaganista free markets mantra ; which both came down in flames when WS's temple caught fire during Lehman collapse and the mighty petrodollar started its ominous swan song of inevitable death and decline being enacted in front of our eyes.

This head up ass political cum economic concoction is now heading straight to the wall under the constraints of the law of diminishing returns; aka under the gaze of Nemesis personified, (if you want to say it in terms of that other avatar of western mythological morality). 

Markets HAVE to be politicized in an Imperial construct. After all, the end justifies the means!

Thats what "our way of life is non negotiable" means as does "for us or against us" black and white. 

Tue, 06/24/2014 - 18:07 | 4890984 kurt
kurt's picture

Raise your hand if you remember yellow wrap.

During the first Arab Oil Embargo when inflation was out of control, grocers introduced generic foods, white, yellow, blue plain packaged low end goods. Most don't remember but there were more and more "price controls" placed on things.

In a future near to you (I write from the future), with RFID, price scanners, video surveillance, and omnipresent spying, coupled with computers, there will be NO posted prices in stores. 

AI computers will price things high and low on-the-fly. Higher prices will be granted to those corporations who contribute to their representatives' campaigns, as well as monopoly control of critical items. Why? Because present day American's failed to reverse Citizens United before the AI bots took over. Sad really.

Tue, 06/24/2014 - 21:34 | 4891670 NidStyles
NidStyles's picture

Is your last name Vonnegut by any chance?

Tue, 06/24/2014 - 18:18 | 4891024 teslaberry
teslaberry's picture

bill gross does not represent the new normal, he represents capitulation to financial interests who want his middle income savers to fork over their yield to wall street. 


if bill gross tried liquidating all his funds and buying 100% PHYSICAL GOLD. they would kill him. 

if bill gross did the same with paper gold ---they would thank him because his investors would lose their shirt. 


bill gross knows this whole thing is a catastrophe, he's just not as concerned with making more than 3% for his investors because he doesn't NEED to be. 

there is no real  underlying dispute. no one thinks this is the 'new normal' , what they think is that you cannot outsmart the fed because the fed has the printing press, so they will let the whole thing collapse when they are good and ready. 


Tue, 06/24/2014 - 18:26 | 4891059 Modern Money Me...
Modern Money Mechanics's picture

To understand how central bank driven inflation has eroded our standard of living, consider when Henry Ford decided 100 years ago in 1914 to pay his assembly line workers $5 per day and reduce the workday from 9 to 8 hours. This was not an act of charity, rather it was used reduce employee turnover and, in turn, reduce overall cost of operations. Using the above metrics, a gold coin was priced as $20 of legal tender in 1914. One hundred years later the same coin is priced at $1,300 which is an inflation factor of 65. Sixty five x $5.00 is $325/8-hour day or $40.63/hour or $82,063/year.

But we also know that the price of gold is suppressed with a massive paper-gold COMEX future market trading over 250 paper ounces to one physical ounce. Assuming there was little inflation from 1914 to 1933 and using the above cost-of-living data from 1933, one would have to multiply 104 x $5.00 for $520/8-hour day or $65/hour or $131,300/year to see today's value of the 1914 $5.00 day wage!

In 2013 the average automotive worker hourly wage was 27.77 or $56,095/year. In other words, today's auto workers receive approximately 40% pay of a 1914 auto worker!

Tue, 06/24/2014 - 19:31 | 4891270 moneybots
moneybots's picture

"In 2013 the average automotive worker hourly wage was 27.77 or $56,095/year. In other words, today's auto workers receive approximately 40% pay of a 1914 auto worker!"


Meanwhile, after aquiring a leverage waiver, to recklessly leverage up Goldman Sachs, HanK PaulsoN  then walked away with 500 million dollars and when Goldman crashed, PaulsoN then extorted 700 billion from the tax payers, some of whom are auto workers. 

Tue, 06/24/2014 - 18:54 | 4891149 AdvancingTime
AdvancingTime's picture

 It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. At some point the return on loaning money is simply not worth the risk!

 Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008.

When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants. More on this subject below.

Tue, 06/24/2014 - 18:58 | 4891162 AdvancingTime
AdvancingTime's picture

I contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large  percentage of wealth into intangible products or goods. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which economic events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas.

 It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it  leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years.  More in the article below.


Tue, 06/24/2014 - 20:12 | 4891383 Radical Marijuana
Radical Marijuana's picture

My take on the "inflation" versus "deflation" debates are that they are aspects of the problem that "money" is being made out of nothing, and can return to nothing.

Inflation is too much money made out of nothing, while deflation is too much money disappearing to nothing. Since the ability to make the public "money" supply out of nothing has been almost totally privatized, the trend is towards relentless inflation. However, eventually, that risks collapsing the economy, in ways which provoke deflation, whose "solution" is for those who can make more "money" out of nothing to struggle to do so.

Both problems are due to the basic enforced frauds, of privatized fiat "money," where the control over the supply has been privatized, and dominated by the central banks. A deeper level of awareness would require the public to take back control over the public money supply, however that could not happen unless the public was also able to take back more control over the murder system, because what exists today is the result of the application of the methods of organized crime, in order to take over control of the public powers of governments, and legalize those being privatized, through the central banks, and another private banks.

The central banking systems exist because of the ability of bribery, intimidation and assassination to dominate the political processes, so much, for so long, that almost all successful and surviving politicians became the banksters' puppets, whose job was to perform for the masses of muppets, in order to fool enough of them, enough of the time.

The most important pivotal historical events in those developments were when the banksters had the politicians that could not be otherwise bribed or intimidated be assassinated. That was the most important way in which the established monetary system was backed by murder. However, in abstract the entire monetary system is measurement backed by murder, because it must necessarily be. Human realities are always organized lies, operating robberies. All private property is based on claims backed by coercions, with money being the most abstract expression of those basic facts.

As I have outlined in my other replies above, as well as discussed under many different articles in Zero Hedge (as well as elsewhere for several decades), we are living in a civilization that was built on the foundation of enforced frauds, to the degree that it has become runaway criminal insanity. However, the only genuine solutions are for more people to understand how and why the government is the biggest form of organized crime, controlled by the best organized gang of criminals. "Chaos and major disruption would result from such a scenario." There can not be a better monetary system unless there was a better murder system to back that up, which is why we are so, so seriously screwed!

Tue, 06/24/2014 - 19:10 | 4891202 moneybots
moneybots's picture
These Fake Rallies Will End In Tears: "If People Stop Believing In Central Banks, All Hell Will Break Loose"


All hell has already broken loose.  The NASDAQ crashed after it shot for the moon.  The moon shot caused the crash.  We have the same going on now in a no fear low VIX market.  All hell breaks loose to the upside before doing an inverse gainer into the pool below.


How can one believe in a central bank that condecendingly says that savers wear many hats, so that makes it OK to financially ruin them?????????????????>??

How can one believe in a central bank which condecendingly says ramping price inflation is just noise, while it financially ruins people?????????????

Tue, 06/24/2014 - 19:20 | 4891240 moneybots
moneybots's picture

"In this environment it may ultimately pay to be a speculator rather than an investor."


How can one invest in a market rife with fraud?  There is no investing metric.  Buy the most shorted, not the most productive company.

Tue, 06/24/2014 - 19:46 | 4891320 moneybots
moneybots's picture

4. Inflation is not dead. Many market participants seem to believe that inflation will never come back.


It is deflation that is not dead.  The FED can't print it's way out of debt by creating more debt. It is the old addage that you can't dig your way out of a hole by digging it deeper.  The FED is still digging it deeper.

Tue, 06/24/2014 - 20:44 | 4891497 tttan
tttan's picture

Central bankers are the biggest maipulators in the market places with little credibility. Most dont even know the meaning of inflation as they dont do any groceries or eat out ( free lunchand dinner most of the time). When was the last time they have made decent economic forecasts within a small margin of error. I can say with certainty they are always wrong. They also have so many excuses not to do anything ( changing unemployment rate, changing inflation trigger, changing economic growth rate, changing employment participation rate, change and change until until changes in their policies. As far as inflation is concern they are worried that inflation is low below 2% but they did not realize that the inflation index is flawed and constructed by Greenspan to depress inflation in the 80s. Just include food and energy component back into the index, I guarantee inflation willbeback above 3%.. Carney just flip flop within 2 weeks. I have a suggestion for these bureaucrats with no market experience - Take a 5 years  vacation and close the Fed down and leave interest unchange for the next 5 years and let themarket decide the real rate.

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