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This Time 'Is' Different - For The First Time In 25-Years The Wall Street Gamblers Are Home Alone

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

The last time the stock market reached a fevered peak and began to wobble unexpectedly was August 2007. The proximate catalyst back then was the sudden recognition that the subprime mortgage problem was not contained at all, as Bernanke had proclaimed six months earlier. The evidence was the surprise announcement by the monster of the mortgage midway - Countrywide Financial - that it would be taking huge write-downs on its $200 billion balance sheet.

At the time, it had not quite invented the term “fortress balance sheet” per JPMorgan’s later hyperbole, but the market overwhelmingly believed that the orange man—–Angelo Mozillo—-ran a tight ship; that the proponderant share of its business was in “safe” Freddie/Fannie originations and guaranteed paper; and that any losses from the sketchier subprime mortgage business that it had recently entered would be covered by its loan loss reserves and the massive earnings on its GSE book of business. Only now do we know that Countrywide was a house of cards that has cost(so far) its reluctant suitor, Bank of America, upwards of $50 billion in write-offs, losses and settlements.

It is in the nature of bubble finance that markets do not recognize disasters lurking in plain sight. Prior to the August 2007 swoon, Countrywide still had a market cap of $15 billion. Indeed, at that point the combined market cap of Bear Stearns, Freddie Mac and Fannie Mae, Lehman Brothers, AIG and GM, just to name the obvious, was upwards of one quarter trillion dollars!

Markets were most definitely not in the classic “price discovery” business. That is, they were not discovering information about the speculative rot under housing prices or the dealer lots bulging with unsold cars or freshly minted subdivisions where subprime residents were delinquent on both their mortgage and car loans or the adjacent strip malls that had no tenants and no customers.

Instead, the stock market had discovered the “goldilocks economy” - a pleasant place of subdued inflation, measured growth and perpetually rising stock and real estate prices. The most notable point was the belief that the Fed had delivered this salutary state of affairs owing to its enlightened management of the macro-economy, and that this condition could be sustained indefinitely.

Bernanke had somewhat immodestly called this the Great Moderation, and it was reflected in the stock market averages and the capitalization rates they allegedly embodied. Not incidentally, the market had risen nearly continuously for 55 months, and the “buy the dip” brigade of the dotcom era had come back from the dead. So dips got shallower and the setbacks less frequent.

That may sound like the recent past, and it was. The forward consensus of sell-side analysts was that S&P 500 earnings (ex-items) for 2008 would come in around $110 per share or at about 14X based on the July interim high of $1550 per share. Likewise, the NASDAQ had recovered from its thundering crash of 2000-2001 and had climbed by nearly 100% in the four and one-half years through early August 2007.

Needless to say, goldilocks turned out not to be all that. When the macro-economy buckled under the weight of crashing housing and real estate prices, a plunge in home and commercial real estate construction, a severe liquidation of auto and durable goods inventories and the evaporation of phony financial sector profits, the dips became a deathly plunge, and the “attractively valued” 14X market ended up something else altogether.

As it happened, S&P 500 earnings ex-items came in at about $55 per share for 2008, or half of Wall Street’s hockey-stick projections as of August 2007. And if honest accounting, as embodied in GAAP earnings reported to the SEC is considered, the outcome was only $15 per share.

Self-evidently, the stock market was no longer a discounting mechanism by the end of the second Greenspan Bubble in late 2007 when the Great Recession officially commenced. It had essentially become a casino where the hedge funds and day traders made short term bets in a rigged market. In effect, the Greenspan Put had become institutionalized by the liquidity flood that had accompanied the Fed’s slashing of interest rates from 6% to 1% during the 30 month period after the dotcom crash of 2000. There could no longer be any doubt, at least by the lights of Wall Street, that the central bank had a “put” under the market.

By now it seems indisputable that central banks “puts” are a magnificent elixir for stock market gamblers—so long as confidence is maintained and our monetary central planners have the tools and wits to short-circuit the “dips” before they become runaway crashes. In the section from the Great Deformation below, I described how the Fed reacted aggressively to thwart the correction that commenced in August 2007 when the subprime crisis began to manifest its ugly fangs.

As it turned out, the stock market rallied by another 10% before hitting a final peak in October 2007. Moreover, the Fed continued its campaign to put a floor under the market for another 11 months after the peak—even as the credit and stock market bubbles festered and the underlying macro-economy steadily deteriorated. During this interregnum, the Fed capitulated to Wall Street as symbolized by its panicked response to Jim Cramer’s famous rant described below.

But it was ultimately for naught. The market suffered a devastating 55% collapse in the 18 months after the unavoidable correction of the Greenspan Housing Bubble commenced in August 2007. Stated differently, central bank bubbles can be fueled and coddled for an extended period, but ultimately reality sets in.

 

 

So here we are once again, and it is once again claimed that this time is different. The 65 month rise of the S&P 500 bears all the hallmarks of a central bank fueled casino—- even more completely than the 2003-2007 run. Also once again, the market is said to be “attractively valued” and that next years earnings(ex-items) at $125 per share represent only a 15X PE multiple. So after the “healthy correction” of the past week or so, it is purportedly time once again to buy the dip.

Except this time is indeed different, but not in a good way. When Bernanke & Co. stalled off the August 2007 correction for nearly a year, they still had plenty of dry powder. The federal funds rate was 5.25% and the Fed’s balance sheet was only $850 billion.

But now, however, we are on the far side of the great monetary experiment known as ZIRP and QE. The money market rate is at the zero bound and has been pinned there for 69 months running—a stretch never before experienced even during the Great Depression. Likewise, the Fed’s balance sheet has grown by 5X to nearly $4.5 trillion—again a previously unimaginable eruption.

These conditions undoubtedly explain the “buy the dips” joy ride pictured above. And they also probably explain why actual LTM GAAP earning at about $102 per share on the S&P 500 are exactly where they were in the fall of 2007—-at the tippy top of the historic range at 19X. But no one cared then— nor apparently do they now.

But what is profoundly different this time is that the Fed is out of dry powder. Its can’t slash the discount rate as Bernanke did in August 2007 or continuously reduce it federal funds target on a trip from 6% all the way down to zero. Nor can it resort to massive balance sheet expansion. That card has been played and a replay would only spook the market even more.

So this time is different.  The gamblers are scampering around the casino fixing to buy the dip as soon as white smoke wafts from the Eccles Building.  But none is coming. For the first time in 25- years, the Wall Street gamblers are home alone.

CHAPTER 23

THE RANT THAT SHOOK THE ECCLES BUILDING

How the Fed Got Cramer’d

 

After climbing steadily for four and a half years, the stock market weakened during August 2007 under the growing weight of the housing and mortgage debacle. Yet in response to what was an exceedingly mild initial sell-off, the Fed folded faster than a lawn chair in a desperate attempt to prop up the stock averages. The “Bernanke Put” was thus born with a bang.

 

The frenetic rate cutting cycle which ensued in the fall of 2007 was a vir- tual reenactment of the Fed’s easing panics of 2001, 1998, and 1987. As in those episodes, the stock market had again become drastically overvalued relative to the economic and profit fundamentals. But rather than permit a long overdue market correction, the monetary central planners began once more to use all the firepower at their disposal to block it.

 

The degree to which the Bernanke Fed had been taken hostage by Wall Street was evident in its response to Jim Cramer’s famous rant on CNBC on August 3, 2007, when he denounced the Fed as a den of fools: “They are nuts. They know nothing . . . the Fed is asleep. . . . My people have been in the game for 25 years . . . these firms are going out of business . . . open the darn [discount] window.”

 

In going postal, Cramer was not simply performing as a CNBC commentator, but functioning as the public avatar for legions of petulant day traders who had taken control of the stock market during the long years Greenspan coddled Wall Street. What the Fed utterly failed to realize was that these now-dominant Cramerites had nothing to do with free markets or price discovery among traded equities.

 

AUGUST 2007: WHEN THE FED CAPITULATED TO FINANCIAL HOODLUMS

The idea of price discovery in the stock market was now an ideological illusion. The market had been taken over by white-collar financial hoodlums who needed a trading fix every day. Through Cramer’s megaphone, these punters and speculators were asserting an entitlement to any and all gov- ernment policy actions which might be needed to keep the casino running at full tilt.

 

If that had not been clear before August 2007, the truth emerged on live TV. The nation’s central bank was in thrall to a hissy fit by day traders. In a post the next day, the astute fund manager Barry Ritholtz summarized the new reality perfectly: “I have two words for Jim: Moral Hazard. Contrary to everything we learned under Easy Alan Greenspan, it is not the Fed’s role to backstop speculators and guarantee a one way market.”

 

Yet that is exactly what it did. Within days of the rant which shook the Eccles Building, the Fed slashed its discount rate, abruptly ending its tepid campaign to normalize the money markets. By early November the funds rate had been reduced by 75 basis points, and by the end of January it was down another 150 basis points. As of early May 2008 a timorous central bank had redelivered the money market to the Wall Street Cramerites. Although the US economy was saturated with speculative excess, the Fed was once again shoveling out 2 percent money to put a floor under the stock market.

 

This stock-propping campaign was not only futile, but also an exercise in monetary cowardice; it only intensified Wall Street’s petulant bailout de- mands when the real crisis hit a few months later. Indeed, on the day of Cramer’s rant in early August 2007, the S&P 500 closed at 1,433. The broad market index thus stood only 7 percent below the all-time record high of 1,553, which had been reached just ten days earlier in late July.

 

Ten days of modest slippage from the tippy-top of the charts was hardly evidence of Wall Street distress. Even after it drifted slightly lower during the next two weeks, closing at 1,406 on August 15, the stock market was still comfortably above the trading levels which prevailed as recently as January 2007.

 

Still, the Fed threw in the towel the next day with a dramatic 50 basis point cut in the discount rate. Although no demonstration was really needed, the nation’s central bank had now confirmed, and abjectly so, that it was ready and willing to be bullied by Cramerite day traders and hedge fund speculators. The latter had suffered a “disappointing” four weeks at the casino; they wanted their juice and wanted it now.

 

Needless to say, the stock market cheered the Fed’s capitulation, with the Dow rising by 300 points at the open on August 17. The chief economist for Standard & Poor’s harbored no doubt that the Fed’s action was a deci- sive signal to Wall Street to resume the party: “It’s not just a symbolic ac- tion. The Fed is telling banks that the discount window is open. Take what you need.”

 

The banks did exactly that and so the party resumed for another few months. By the second week of October the market was up 10 percent, enabling the S&P 500 to reach its historic peak of 1,565, a level which has not been approached since then.

 

Pouring on the monetary juice and signaling to speculators that it once again had their backs, the Fed thus wasted its resources and authority for a silly and fleeting prize: it was able to pin the stock market index to the top rung of its historic charts for the grand duration of about six weeks in the fall of 2007. There was no more to it, and no possible excuse for its panic rate cutting.

 

HOW THE FED GOT CRAMER’D

The Fed’s abject surrender to the Cramerite tantrums in the fall of 2007 was rooted in ten years of Wall Street coddling. Mesmerized by its new “wealth effects” doctrine, the Fed viewed the stock market like the famous Las Vegas ad: it didn’t want to know what went on there, and was therefore oblivious to the deeply rooted deformations which had become institu- tionalized in the financial markets. The sections below are but a selective history of how the nation’s central bank finally reached the ignominy of being Cramer’d by financial TV’s number one clown.

 

The monetary central planners only cared that the broad stock averages kept rising so that the people, feeling wealthier, would borrow and spend more. It falsely assumed that what was going on inside the basket of 8,000 publicly traded stocks was just the comings and goings of the free market— and that this was a matter of tertiary concern, if any at all, to a mighty cen- tral bank in the business of managing prosperity and guiding the daily to-and-fro of a $14 trillion economy.

 

But what was actually going on in the interior of the stock market was nightmarish. All of the checks and balances which ordinarily discipline the free market in money instruments and capital securities were being evis- cerated by the Fed’s actions; that is, the Greenspan Put, the severe repres- sion of interest rates, and the recurrent dousing of the primary dealers with large dollops of fresh cash owing to its huge government bond purchases.

 

This kind of central bank action has pernicious consequences, however. By pegging money market rates, it fosters carry trades that are a significant contributor to unbalanced markets. Carry trades create an artificially en- larged bid for risk assets. So prices trend asymmetrically upward.

 

The Greenspan Put also compounded the one-way bias. For hedge fund speculators, it amounted to ultra-cheap insurance against downside risk in the broad market. This, too, attracted money flows and an inordinate rise in speculative long positions.

 

The Fed’s constant telegraphing of intentions regarding its administered money market rates also exacerbated the stock market imbalance. By peg- ging the federal funds rate, it eliminated the risk of surprise on the front end of the yield curve. Consequently, massive amounts of new credit were created in the wholesale money markets as traders hypothecated and re- hypothecated existing securities; that is, pledged the same collateral for multiple loans.

 

The Fed’s peg on short-term rates thus fostered robust expansion of the shadow banking system, which as indicated previously, had exploded from $2 trillion to $21 trillion during Greenspan’s years at the helm. This vast multiplication of non-bank credit further fueled the “bid” for stocks and other risk assets.

 

Fear of capital loss, fear of surprise, fear of insufficient liquidity—these are the natural “shorts” on the free market. The paternalistic Dr. Green- span, trying to help the cause of prosperity, thus took away the market’s natural short. In so doing, he brought central banking full circle. William McChesney Martin said the opposite; that is, he counseled taking away the punch bowl, thereby adding to the short. Now the punch bowl was over- flowing and the short was gone.

 

Speculators were emboldened to bid, leverage their bid, and then to bid again for assets in what were increasingly one-way markets. As time passed, more and more speculations and manipulations emerged to capi- talize on these imbalances.

 

“Growth stocks” were always a favored venue because they could be bid- up on short-term company news, quarterly performance, and rumors of performance (i.e., “channel checks”). During these ramp jobs, which ordinarily spanned only weeks, months, or quarters, traders could be highly confident that the Fed had interest rates pegged and the broad market propped.

 

Financial engineering plays such as M&A and buybacks came to be es- pecially favored venues because these trades tended to be event triggered. Upon rumors and announcements, these trades could generate rapid replication and money flows. Again, speculators were confident that the Fed had their back, while leveraged punters were pleased that it had seconded to them its wallet in the form of cheap wholesale funding.

 

At length, the stock market was transformed into a place to gamble and chase, not an institution in which to save and invest. Since this gambling hall had been fostered by the central bank rather than the free market, it was not on the level. That means that most of the time most of the players won and, as shown below, the big hedge funds which traded on Wall Street’s inside track with its inside information won especially big and un- usually often.

 

Needless to say, frequent wins and hefty windfalls created expectations for more and more, and still more winning hands. As the Greenspan bub- bles steadily inflated—both in 1997–2000 and 2003–2007—these expecta- tions morphed into virtual Wall Street demands that the Fed keep the party going. Wall Street demands for a permanent party, at length, congealed into the presumption of an entitlement to an ever rising market, or at least one the Fed would never let falter or slump.

 

Finally, this entitlement-minded stock market became a blooming, buzzing madhouse of petulance, impatience, and greed. Cramer embodied it and spoke for it. By the time of his rant, the Fed had become captive of the monster it had created. Now, fearing to say no, it became indentured to juicing the beast. After August 17, 2007, there was no longer even the pretense of reasoning or deliberation about policy options in the Eccles Building. The only options were the ones that had gotten it there: print, peg, and prop.

 

One of the great ironies of the Greenspan bubbles was that the free market convictions of the maestro enabled the Fed to drift steadily and irreversibly into its eventual submission to the Cramerite intimidation. It did so by turning a blind eye to lunatic speculations in the stock market, dismissing them, apparently, as the exuberances of capitalist boys and girls playing too hard. By the final years of the first Greenspan bubble, however, there were plenty of warning signals that there was more than exuberance going on. Hit-and-run momentum trading and vast money flows into the stocks of serial M&A operations were signs that normal market disciplines were not working. Indeed, the M&A mania was a powerful indictment of the Fed’s prosperity management model.

 

These hyperactive deal companies with booming share prices were be- ing afflicted ever more frequently with sudden stock price implosions that couldn’t have been merely random failures on the free market. Yet, as in the case of the subprime mania, the central planners undoubtedly read the headlines about these recurring corporate blowups and never bothered to connect the dots.

 

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Wed, 10/15/2014 - 17:02 | 5337164 kowalli
kowalli's picture

good article. read it all

Wed, 10/15/2014 - 17:03 | 5337174 Escrava Isaura
Escrava Isaura's picture

 

Sure! I Almost believed you.

 

Wed, 10/15/2014 - 17:05 | 5337178 X.inf.capt
X.inf.capt's picture

today was good..

tomorrow....?

can they keep pulling saves like today?

Wed, 10/15/2014 - 17:11 | 5337216 kaiserhoff
kaiserhoff's picture

I make it ~ 13 years since Greenspan panicked, and cut the discount rate to 1%,

  but dating from the rise of the Japanese carry trade (89), yeah, about 25 years on life support.

Solid piece.

Wed, 10/15/2014 - 17:31 | 5337338 Pool Shark
Pool Shark's picture

 

 

We are Japan...

 

Cash, Bonds, Gold...

 

Wed, 10/15/2014 - 17:48 | 5337433 NoDebt
NoDebt's picture

The entire developed world is Japan.

Except for Japan.  They are becoming something else right now.

Wed, 10/15/2014 - 18:24 | 5337673 SumTing Wong
SumTing Wong's picture

I love the one where Kent Brockman talks about the rich being able to take "golden showers." They truly deserve it!

Wed, 10/15/2014 - 19:19 | 5337974 Handful of Dust
Handful of Dust's picture

Food, Ammo, Gold ... and lots of hand sanitizer ....

When this thing blows, we're going to see serious inflation as a result of dollar devaluation my financial adviser tells me.

Wed, 10/15/2014 - 20:20 | 5338269 Crisismode
Crisismode's picture

Massive deflation first.

 

Then, massive hyperinflation soon thereafter.

 

Whipsawed much?

 

Not if you hold the golden coinies.

 

Wed, 10/15/2014 - 22:30 | 5339143 The Joker
The Joker's picture

I don't know about that. 

Wed, 10/15/2014 - 18:15 | 5337617 Bangalore Equit...
Bangalore Equity Trader's picture

Listen Shark.

Cant wait to see your USSA Herbivore Man and Dried Fish Woman!

https://www.youtube.com/watch?v=tra0HBUYyfU

Down the "TUBES" you go!

Wed, 10/15/2014 - 18:36 | 5337745 Escrava Isaura
Escrava Isaura's picture

Why it’s different?

Look at it as a fishbowl. We have the sharks (bankers, politicians, multinationals, universities, developers) and small fishes (majority of the population).

The fishbowl (earth) is not growing, while the sharks and small fishes are multiplying.

So, the aquarium (Fed) gets desperate and add water (inflation) thus overflowing the fishbowl and dragging and killing the small fishes.

 

And that’s the tragedy we are witnessing.... for the foreseeable future!

 

Wed, 10/15/2014 - 19:04 | 5337902 Razor_Edge
Razor_Edge's picture

Bangalore, if you pseudonym indicates your origin and location, then clearly English is not your mother tongue. I say clearly, because I have seen other posters take you to task for  beginning every comment with "Listen......" and yet you continue with this oxymoron. It's totally inappropriate in a written context for starters. More importantly, it comes across as pedantic, arrogant even. As if you have pearls of wisdom to throw before swine. Not exactly calculated to make friends and influence people. So perhaps you might take the prompts of the several posters mentioned above and drop the LISTEN thingy?

Wed, 10/15/2014 - 19:48 | 5338045 Bangalore Equit...
Bangalore Equity Trader's picture

Listen Edge.

Are you crazy? My English teacher put a rap on my knuckles when I tried to exclude "THE FORMAL GREETING" in my homework.

Let me be real clear. People in USSA do not learn "PROPER" English but their exceptionalism tells them that that is not so, they are the "PROTOTYPES".

In closing let me leave you with a tasty little comment morsel to chew on:
http://www.zerohedge.com/news/2014-10-15/cdc-demands-132-passengers-flew...

Kind regards.

Wed, 10/15/2014 - 20:22 | 5338291 Crisismode
Crisismode's picture

He's just a Troll, baiting you all with great success.

 

Don't Feed The Troll.

 

Just ignore him.

 

Thu, 10/16/2014 - 19:58 | 5344401 Razor_Edge
Razor_Edge's picture

I don't know about people in the USSA, I don't come from there. I come from the first colony and where we are reputed to speak better English than the Brits themselves.  A country which has produced some of the best writers in English, giants of poetry, prose and drama, in the sassenach tongue.

And if you teacher wrapped your knuckles for not including "THE FORMAL GREETING", ie, "Listen", then he/she/it could have done with a good English teacher himself.

Wed, 10/15/2014 - 17:35 | 5337354 XqWretch
XqWretch's picture

I'm sure negative interest rates will fix this!

Wed, 10/15/2014 - 17:13 | 5337228 SHEEPFUKKER
SHEEPFUKKER's picture

If there is no audit, why can't they keep pulling out a bigger plunger? 

Wed, 10/15/2014 - 17:22 | 5337275 ZerOhead
ZerOhead's picture

"But what is profoundly different this time is that the Fed is out of dry powder. Its can’t slash the discount rate as Bernanke did in August 2007 or continuously reduce it federal funds target on a trip from 6% all the way down to zero. Nor can it resort to massive balance sheet expansion. That card has been played and a replay would only spook the market even more."

Apparently the author believes if the Feds Ctrl "P" is used to keep the markets (and financial system) from collapsing again it could cause some people to lose faith in the markets and cause them to collapse.

Wed, 10/15/2014 - 17:26 | 5337301 RockyRacoon
RockyRacoon's picture

Get this:  Channel surfing I see that Kudlow is on the Ed Show explaining what happened to the market today.

What disinformation could possibly be disseminated?  (That's rhetorical...)

Wed, 10/15/2014 - 17:25 | 5337298 kaiserhoff
kaiserhoff's picture

Because recently the plunge protection thang has had diminishing returns.  They are running up against real constraints of falling profits and cash flow.

That was Tyler's general thrust in some of the pieces on the Fed's (lack of) effectiveness.

 

Wed, 10/15/2014 - 17:30 | 5337332 SAT 800
SAT 800's picture

I'm not going to get into a debate with a sheepfukker about bigger plungers; you probably know more about it than I do. Let's just say; for various reasons, we don't expect anything but jawboning and "optics".

Wed, 10/15/2014 - 17:42 | 5337389 SAT 800
SAT 800's picture

Saves; yes; new highs; no. It's a bear market now; so sell rallies instead of buying dips.

Wed, 10/15/2014 - 18:06 | 5337565 Landrew
Landrew's picture

almost right, buy the puts on up days. Leverage works in both directions!

Wed, 10/15/2014 - 19:27 | 5338003 max2205
max2205's picture

When you hear Mr Yellins vibrator set on high, buy, you know she's cumming.

Wed, 10/15/2014 - 22:08 | 5338990 Lets Buy The Dip
Lets Buy The Dip's picture

TONY killer stuff lately. Looks like the FEAR INDEX all time lows! WOW! SEE HERE==> http://bit.ly/1fMcakI

is all time low, and that means retail traders getting tricked in short, and will get their ass handed to them in NOV - DEC. Very eye opening!

Wed, 10/15/2014 - 20:03 | 5337688 eXMachina
eXMachina's picture

Your comments are a waste of space. If you can't see the validity of the article you must be trolling on purpose. Stop using up the oxygen, you're making everybody claustrophobic.

Wed, 10/15/2014 - 17:07 | 5337192 zorba THE GREEK
zorba THE GREEK's picture

For the markets, it's deja vu all over again.

Wed, 10/15/2014 - 18:45 | 5337801 Colonel Klink
Colonel Klink's picture

Markets, HAHAHAHA!!!  I love when people refer to the casinos like that.

Wed, 10/15/2014 - 17:12 | 5337225 TruthInSunshine
TruthInSunshine's picture

Here's a short, precise summary of why it's different this time, for the far worse:

There's even more structural rot in the economic foundation (middle class wipeout) along with phantom, illusory "wealth" (balance sheet, unrealized) than that which existed in 2007.

Also, consumer balance sheets are not better now (record household/consumer debt with each passing day), and corporations are choking on debt (issued to buy back own shares & boost dividends), also now at a new record high.

There's nothing but air below the mirage cloud of illusory wealth creation that 6 years of central bank electronic printing has created.

Watch how fast even the illusion gets destroyed.

Wed, 10/15/2014 - 17:15 | 5337236 kowalli
kowalli's picture

Thanks. It's really to big to read...

Wed, 10/15/2014 - 18:10 | 5337589 Landrew
Landrew's picture

Summed up nicely! Well put, the buybacks will kill the value.

Wed, 10/15/2014 - 17:27 | 5337307 Tasty Sandwich
Tasty Sandwich's picture

Don't tell me what to do.

Wed, 10/15/2014 - 17:28 | 5337323 SAT 800
SAT 800's picture

I would say what's different; is it's now a bear market; so you sell rallies instead of buying dips. It's not nuclear physics.

Wed, 10/15/2014 - 20:30 | 5338339 Crisismode
Crisismode's picture

 

 

Ah, but is it Rocket Surgery?

 

All claims of superficial wisdom are immediately suspect.

 

Wed, 10/15/2014 - 17:56 | 5337485 Fox-Scully
Fox-Scully's picture

Is it available in cliff notes?

Wed, 10/15/2014 - 17:03 | 5337171 max2205
max2205's picture

Time to put the marbles by the front door, just in case

Wed, 10/15/2014 - 17:06 | 5337189 F0ster
F0ster's picture

The Fed has no other option but to let deflation run it's course.

Wed, 10/15/2014 - 21:03 | 5337218 sixsigma cygnus...
sixsigma cygnusatratus's picture

I'm thinking Krugman will write a public apology to Charles Ponzi and nominate him posthumously for a Nobel Prize in Economics, for being way ahead of his time and a true visionary of monetary policy.

Wed, 10/15/2014 - 17:16 | 5337240 Ban KKiller
Ban KKiller's picture

I think Europe hears you.

Wed, 10/15/2014 - 17:22 | 5337276 Escrava Isaura
Escrava Isaura's picture

F0ster,


I think you statement is misguided and lack historical perspective.

 

Wed, 10/15/2014 - 17:33 | 5337342 SAT 800
SAT 800's picture

fortunately I don't care what you think you're talking about.

Wed, 10/15/2014 - 17:38 | 5337368 Statetheist
Statetheist's picture

SAT 800 speaks for just about everyone here at ZH by the way, Escrava.

Wed, 10/15/2014 - 17:49 | 5337425 Escrava Isaura
Escrava Isaura's picture

 

Wow! SAT 800 speaks “for just about everyone”

That’s impressive find all the smart brains thinking alike.

What could possible go wrong? And be more indoctrinating.

 

 

Wed, 10/15/2014 - 18:34 | 5337731 X.inf.capt
X.inf.capt's picture

i listen to SAT

and maybe you should STFU and listen too...

peace...

Wed, 10/15/2014 - 20:37 | 5338381 Crisismode
Crisismode's picture

Escrava,

 

You have proven yourself to be a complete idiot.

There is no need to offer further proof with further anal vomit from you.

Please, quit while you are ahead.

Go away and leave us alone.

 

Thu, 10/16/2014 - 07:20 | 5340328 Escrava Isaura
Escrava Isaura's picture

Ahead of whom? Ahead of what?

First: Many here have being wrong for years; mostly wrong, I believe, because they let their biases interfere with their thinking thus enabling them to face the facts.

Second: If blogging can affect your views and believes so negatively, to the point that you can’t deal with that leave us with these two questions about you:

a) how can you function in the real world and b) maybe is time to starting question your views and believes……. To say the least.

Again, not that either matters to me. Or, they come as surprise.

 

Wed, 10/15/2014 - 18:12 | 5337607 Landrew
Landrew's picture

I am not sure what you mean, no other option? Could you explain that? They could still print even more hoping to spark THEIR wanted inflation. I believe in the end they lose however, that is still an option?

Wed, 10/15/2014 - 17:08 | 5337197 Stoploss
Stoploss's picture

For the first time in 25- years, the Wall Street gamblers are home alone,, holding the bag.

 

All fixed.

Wed, 10/15/2014 - 17:41 | 5337395 silverliberty
silverliberty's picture

They are home alone, alright but they are not holding a bag.  They are holding their dicks with the bag strapped over their heads auto-affixiating over their gains on their short positions.  Literally, they're Money Fuckers.

Wed, 10/15/2014 - 19:08 | 5337923 new game
new game's picture

not yet; holding their limp disket, fixed?

Wed, 10/15/2014 - 17:10 | 5337212 ZippyBananaPants
ZippyBananaPants's picture

What a great movie, especially when the bad guys get it in the nuts!!  Always high-jinks and fun when someone gets it in the package!

Wed, 10/15/2014 - 17:12 | 5337227 I woke up
I woke up's picture

FRED clearly needs to stop releasing those charts to the public

Wed, 10/15/2014 - 17:47 | 5337423 Winston Churchill
Winston Churchill's picture

Alfredo has replaced FRED at minimum wage.

Wed, 10/15/2014 - 18:15 | 5337626 Ness.
Ness.'s picture

And he'll mow your lawn for cash on the side.  'Murica!!

Wed, 10/15/2014 - 17:20 | 5337246 medium giraffe
medium giraffe's picture

"It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind, as to subscribe his professional belief to things he does not believe, he has prepared himself for the commission of every other crime."
- Thomas Paine, Age of Cramer

Wed, 10/15/2014 - 17:17 | 5337247 Al Huxley
Al Huxley's picture

What if the Fed massively expanded its balance sheet again, BUT - hear me out - they CALLED it something new and different and catchy, not QE or operation twist, something edgier, more in tune with today's hip, social media crowd?  Would that be an option that wouldn't spook the market and would preserve the image of the Fed as the savior of the economy and America in general?

Wed, 10/15/2014 - 17:32 | 5337334 Bell's 2 hearted
Bell's 2 hearted's picture

The problem is ... a lack of supply

 

treasury out FY2014 deficit ... "only" around $480 billion, BUT much of that debt is in tbills, notes and not  bonds (FR buying blended avg maturity 9yrs) ... FR Articles allow it to buy "full faith" govt debt ... nowhere does it say equities (need to be able to reverse ... somewhere along the line ... or else potential zimbabwe situation)

 

Not saying they could buy equities ... or old vehicles for that matter ... but not in their Charter and would need congressional approval.

Wed, 10/15/2014 - 17:33 | 5337349 NotApplicable
NotApplicable's picture

Charter? LOL

I'm sure that shit's right there next to 2% inflation and stable employment.

Wed, 10/15/2014 - 17:40 | 5337385 Bell's 2 hearted
Bell's 2 hearted's picture

their powers are limited

 

They did what they could

 

Time for Congress to step up (and they will when enough rubble strewn about)

Wed, 10/15/2014 - 18:30 | 5337710 SumTing Wong
SumTing Wong's picture

What if the Fed called it iDebt? Surely all the dumbass millenials would line up to be able to buy some of it. Hell, they would camp out for days to get to buy some. Sure, they'd have to buy it on credit, and most of that would be subprime, but it would help the virtuous cycle the Fed is creating.

Wed, 10/15/2014 - 19:09 | 5337918 g speed
g speed's picture

Fed buys equities --how----buys bad stuff off bank balance sheets ---banks use money to buy more questionable assets-(stocks) Kind of in the back door but the effect is the same---possible because of repeal of Glass/Steagall

Wed, 10/15/2014 - 17:38 | 5337372 Pool Shark
Pool Shark's picture

 

 

Since when did minor impediments, like laws, get in the way of central banksters?

 

 

Wed, 10/15/2014 - 18:02 | 5337526 Al Huxley
Al Huxley's picture

I up-arrowed you, although it seems weird you would even have to post that statement, it's like having to tell people that it gets dark at night.

Wed, 10/15/2014 - 17:31 | 5337337 NotApplicable
NotApplicable's picture

This is exactly what I've been waiting for. My guess is that it won't even have a financial name that is directly tied to fed actions.

Instead? "New Deal 2.0, Fighting the Good Fight."

Federal funding for each and every bogeyman out there. I figure $10T per year ought to give them a few years until martial law is firmly in place.

Wed, 10/15/2014 - 17:42 | 5337400 Jethro
Jethro's picture

Well, Barry does fancy himself as a Roosevelt-type figure.

Wed, 10/15/2014 - 17:50 | 5337439 Winston Churchill
Winston Churchill's picture

Obozo is a twisted piece of shit, but can't blame it on polio.

Wed, 10/15/2014 - 18:22 | 5337651 slovester
slovester's picture

Raw Deal 2?

Wed, 10/15/2014 - 21:55 | 5338911 lameusername
lameusername's picture

Starring a geriatric Arnold Schwarzenegger & Janet Yellen can co-star as as the new Monique. Joseph P. Brenner has to infiltrate the Fed to find the guys who killed his ex-partner's IRA & Yellen is the resident gang slut he falls in love with. She helps him take down the empire, he saves her & they ride Bernanke's helicopter off into the sunset.

Wed, 10/15/2014 - 17:35 | 5337351 A82EBA
A82EBA's picture

You can bet they'll do something like that.

Those profits skimmed in last two weeks still have real purchasing power. The music stopped and those guys found chairs.

BTFD at S&P 1812

Wed, 10/15/2014 - 17:37 | 5337361 therover
therover's picture

I say call it Operation Fuckshow

Wed, 10/15/2014 - 17:41 | 5337392 kaiserhoff
kaiserhoff's picture

The House wants to audit the fuckers.

If the Senate goes Republican.... it's never good weather in Leavenworth;)

Wed, 10/15/2014 - 19:25 | 5337828 slovester
slovester's picture

IMO, the House is only voting in favor of a Fed audit because they know it won't get through the Senate.  I don't believe any of our republicrat "public stewards" want the Fed audited because that would be an Emperor's Clothes moment for a large share of America who hasn't bothered to pay attention to what the hell is going on.

/Edit Kaiser - that was not me who downvoted you

Wed, 10/15/2014 - 17:47 | 5337421 Everybodys All ...
Everybodys All American's picture

Something like a My-Ira where the government converts your retirement savings without your knowledge overnight to this new government guaranteed retirment savings account. But it would have nothing to do with off loading the entire Fed Reserve's balance sheet on to your retirement account. Nope. Not at all related.

Wed, 10/15/2014 - 17:52 | 5337456 Winston Churchill
Winston Churchill's picture

Its the FedRes exit plan, as I've said for 18 months now.

No way the bankers get left with that stinking pile of shit.

Wed, 10/15/2014 - 17:49 | 5337435 BandGap
BandGap's picture

Operation Red Cheek Splitter?

What do I win?

Wed, 10/15/2014 - 17:18 | 5337252 ebworthen
ebworthen's picture

Thank you Mr. Stockman.

Thank you for calling out the hooligans.

Now we just need to hang the fuckers.

Wed, 10/15/2014 - 17:19 | 5337256 Ban KKiller
Ban KKiller's picture

Fuck you BofA.

Just to stay on track...

Wed, 10/15/2014 - 17:22 | 5337268 Rainman
Rainman's picture

Don't you worry, fellow citizens ... booking your contribution of 2/20 at Q3 at an outrageously higher NAV was only a rare coincidence. Nothing to see ... nothing to hear.

Wed, 10/15/2014 - 17:23 | 5337284 The Duke of New...
The Duke of New York A No.1's picture

Simply translated; "The FED is out of Bullets".

Wed, 10/15/2014 - 17:37 | 5337360 NotApplicable
NotApplicable's picture

I'd say it translates as "The Fed needs a much bigger gun." They've got plenty of bullets. Thing is, the are ineffective in fazing this debt beast of their own creation.

Add enough zeros to shit, and along with ZIRP/NIRP they can solve the problem mathematically. Only question is who suffers, and how much.

Wed, 10/15/2014 - 17:46 | 5337418 A82EBA
A82EBA's picture

Maybe they dont care how much debt our congress is willing to put on our backs

Wed, 10/15/2014 - 17:25 | 5337295 The Duke of New...
The Duke of New York A No.1's picture

Don't worry for Goldman Sachs .... they'll short their own stock for Billions in quick profits to ride out the correction.

Wed, 10/15/2014 - 17:28 | 5337317 Sick
Sick's picture

One has to wonder why did they even bother with the $700 billion in TARP and Paulsen with his get out of jail free letter, when the FED proceeded to pump trillions into the banks.  I guess it was just cover indicating that they would do something but no indication of what they really were going to do.

Wed, 10/15/2014 - 17:39 | 5337382 NotApplicable
NotApplicable's picture

Activation energy. In this case, the effort was to ensure the unconventional became known as not only conventional, but a "no-brainer."

As always, everything they do is an effort to manage expectations, as they form the basis for collective reality.

Wed, 10/15/2014 - 17:31 | 5337327 docmac324
docmac324's picture

We are priming for a major war/distraction to sweep it under the rug.

 

Wed, 10/15/2014 - 17:54 | 5337463 Monty Burns
Monty Burns's picture

I sadly believe you are correct.  Seems that Russia is being set up as the enemy du jour.

Wed, 10/15/2014 - 22:26 | 5339112 lameusername
lameusername's picture

The only other thing bankers want besides money & power... is war. and can't have one without the other(s).

Wed, 10/15/2014 - 17:31 | 5337329 falak pema
falak pema's picture

Lear on the Heath...wandering alone after the storm...The fool and his disasters.

Enter the Madman... Who says "Print, print, print... and you will be saved ! (He works for the FED).

What a tragi-comedy; which will go full throttle tragedy. 

Wed, 10/15/2014 - 17:31 | 5337335 One And Only
One And Only's picture

So my girl is a real estate agent...

She doesn't know shit when it comes to finance like this gun slinger does but she comes home and says "the weirdest thing happened today" then she says "I was working with this guy who was working on a VA loan...between yesterday and today his IR went down almost down 1%" 

And that's what the FED has done. They have fucked the economy up so bad that stupid retarted shit like this happeneing. And that's all I really have to say about that.

Wed, 10/15/2014 - 17:33 | 5337344 Dewan
Dewan's picture

Yes, but the main thing most of us would like to know is, when will the financial system crash again? No one seems to be able to tell. We will keep watching the events unfold, until the "masters" of all this scheme decide it's time to break everything down again.

Wed, 10/15/2014 - 17:41 | 5337388 Jethro
Jethro's picture

Your question implies that they truly have a handle on it.  I beg to differ.

Wed, 10/15/2014 - 18:31 | 5337718 Dewan
Dewan's picture

I tend to believe that they pretend they have lost control of the economic system, but that might be just another big lie. I believe that because some events unfold unexpectedly for us, since we don't know what the people running the system are after on a certain moment. No one could see the civil war in Ukraine coming for example, but it happened. I have the impression that whoever controls the world we live in, they seem to make the decision to create certain events when the time is right, according to a plan only known to them.

Wed, 10/15/2014 - 18:21 | 5337660 Landrew
Landrew's picture

Anyone who tells you they know the timing is either a liar or a bankster! Oh, sorry one in same.

Wed, 10/15/2014 - 17:39 | 5337377 Jethro
Jethro's picture

All very exciting!  I can't help but wonder what sort of pressure the Fed, the media, and every single mouthpiece for the government will enact to spin a broad market downturn into partisan politics?

The question I have is, if the Fed *has* to raise rates, at what point does the government officially become bankrupt (largely rhetorical question I apologize in advance)?  3%, 4%?

Wed, 10/15/2014 - 17:43 | 5337401 NotApplicable
NotApplicable's picture

That's a moot question. Nukes will fly long before government can be blamed for being stupid.

Wed, 10/15/2014 - 17:46 | 5337413 Jethro
Jethro's picture

Sadly, I have to agree with you....

Wed, 10/15/2014 - 17:41 | 5337390 Pumpkin
Pumpkin's picture

This article only even mentions what we all know for sure, without even mentioning the true evil intent of the people who control the central banks.  I am convinced that they know exactly what they are doing.

Wed, 10/15/2014 - 17:42 | 5337393 youngman
youngman's picture

I hope they do not do anything so we can get back to a normal market....with the CB on the sideline again.....but I doubt it...they will come back in public or not to save their clan again and again and again....

Wed, 10/15/2014 - 17:44 | 5337410 Shizzmoney
Shizzmoney's picture

The dips are proof that the algos will threaten to sell off at ANY hint of raising rates.

QE4EVA at any cost

Wed, 10/15/2014 - 17:44 | 5337411 Karaio
Karaio's picture

The Americans say that the race (if I'm not mistaken NASDAC) of their cars is "international". 

What is the international Formula 1. 

Speak of full lung that their football - that kills a lot of people during the tournament or after - is "international". 

Thing that nobody understands in the world! 

The Brazilian Football's world, the round ball is wrong. 

In Brazilian media showed an American saying it's moronic not give gorgete in NY! 

Uai! 

I always give Tipping the treatment was good, if not, fuck it! 

hehe. 

Heard these days a Russian saying that the United States is sending weapons to the North Pole because penguins do not have democracy, and do not have the required level of homosexuals into law. 

Kkkkkkkkkkkkkkkkkkkkkkkkkkkk 

This world of yours - Americans - are very clueless ridiculous. 

Everyone is watching. 

hehe.

Wed, 10/15/2014 - 17:50 | 5337443 Monty Burns
Monty Burns's picture

What the f*ck are you on about???

Wed, 10/15/2014 - 17:50 | 5337444 Buckaroo Banzai
Buckaroo Banzai's picture

"Karaio" is cock in Portuguese. Although it is spelled differently.

Wed, 10/15/2014 - 18:23 | 5337667 Escrava Isaura
Escrava Isaura's picture

 

Karaio does not speak English; he uses Google translate. That’s why his posts come like this. However, Karaio is very smart. Cock in Portuguese: Caralho.  

 

Wed, 10/15/2014 - 21:25 | 5338705 pickupthatcan
pickupthatcan's picture

There's a fucking suprise.  I bet you know the word "cock" in eight langauges.

Wed, 10/15/2014 - 17:48 | 5337419 xcehn
xcehn's picture

I confess I know people who have said they are waiting for the low to buy the dip. Love of gambling and easy casino winnings keeps them addicted. As the mainstream media tells them not to worry and they drink it down....

Wed, 10/15/2014 - 17:54 | 5337467 AdvancingTime
AdvancingTime's picture

Call it what you want, the "Federal Reserve Nightmare" or the "Yellen conundrum", the box Ben Bernanke made when he painted both himself and the Federal Reserve in a corner remains. Bernanke has by passing the chairmanship to Yellen escaped from the QE trap but left the rest of us fully in its grasp.

With a policy of loose and cheap money  and an inflation target of just 2% the Federal Reserve  continues to please those gambling that not fighting the Fed guarantees profits. I wish someone would let the Fed know we have already passed their inflation target and many Americans are poorer because of it.

As many Americans are forced to pay higher food, gasoline, and health insurance premiums any thought that inflation is not higher has come from the false illusion brought from lower payments on things like auto loans and mortgages. This is a one off and will not continue. Trouble lurks ahead. More on how the Fed lacks a clear path out of this in the article below.

 http://brucewilds.blogspot.com/2014/06/exit-strategy-from-qe-remains-elu...

 

Wed, 10/15/2014 - 18:37 | 5337741 Tinky
Tinky's picture

"false illusion"?

Looking forward to some examples of "true" illusions.

Wed, 10/15/2014 - 18:00 | 5337515 Never One Roach
Never One Roach's picture
Netflix shares down 26% as subscribers disappoint

 

http://finance.yahoo.com/news/netflix-shares-down-26-subscribers-2000463...

Wed, 10/15/2014 - 18:00 | 5337516 starman
starman's picture

Was the Titanic larger then the iceberg? Or wise versa?

Wed, 10/15/2014 - 18:12 | 5337608 Wilcox1
Wilcox1's picture

I wouldn't think there is too much dot connecting going on when so many of the policy makers seem about as sophisticated as the Floor Broker's Network guy from this morning who hadn't seen this kind of open in his entire 14 years.

Wed, 10/15/2014 - 18:18 | 5337619 Hubbs
Hubbs's picture

Hmmmpph, I remember all the BS about the FED having "TOOLS" to deal with the 2008 debacle. Where are their TOOLS now? More like phoney tools.

Almost reminds me of the old movie Flight of the Phoenix starring Ernest Burgoyne and James Stewart. The surviving  passengers in that cargo plane that crashed in the middle of the desert were led to believe they were building a new plane from the wreckage based on a design by an aircraft designer whom they thought designed real sized planes, only to find out after it was nearly built, but obviously not yet test flown, that he was really only a designer of toy airplanes.

 

And the punch line as one of the men began laughing hysterically: What's the matter? Have you lost your sense of curiosity? We could die here (on the desert) or die flying that (pointing to the plane they had completed based  on  a toy airplane designer bluprint.)

But still the plane did get them out of the desert, and they were down to their last 2 engine starting charges. So, who knows? Miracles do happen...at least in Hollywood.

Wed, 10/15/2014 - 23:09 | 5339399 scrappy
Wed, 10/15/2014 - 18:16 | 5337628 Fix It Again Timmy
Fix It Again Timmy's picture

Don't worry man, this market is going.....

https://www.youtube.com/watch?v=3fZBaPS_XvQ

 

Wed, 10/15/2014 - 18:34 | 5337723 Landrew
Landrew's picture

I believe the trade for the next few days may be, the SP 500 calls @1900. The will be a test back to the 200 day moving average? Always has been, always will be?

Wed, 10/15/2014 - 18:36 | 5337738 Karaio
Karaio's picture

Today makes a month that said literally that Ebola transmits through the air. 

Said'm Brazilian and a lot of people escurraçou me. 

Told where I live and a moron said it's a hole. 

Well, 

I am grateful to you for Ebola stop there. 

I call my hole farm is guaranteed. 

Kkkkkkkkkkkkkkkkkkk 

hehe.

Wed, 10/15/2014 - 18:52 | 5337838 itstippy
itstippy's picture

We have the most brilliant and creative financial engineers and algorithmic programmers the World has ever seen as the brains behind the U.S. financial system.  They're backed up by the U.S. Federal Reserve, the U.S.dollar, and the full faith and credit of the United States Of America!

It's time for these guys to get to work and create some new, exciting, and innovative financial products that'll blow away the competition.  American know-how and ingenuity backed by American economic muscle!

Once we pull out of this stubborn economic rough patch and the green shoots of recovery explode in a mighty growth spurt you'll recognize Krugman, Bernanke, Dimon, et. al. for the patriotic mental giants they think they are! 

Wed, 10/15/2014 - 19:34 | 5338035 Wilcox1
Wilcox1's picture

These people mentioned are all likely to be very smart.  Just like any average person. There were some average people in the mid to late 1700's in this country that set up a grand experiment taking advantage of history and knowledge of the weakness of men.  They tried to set up a system that would encourage us to give the weight of consideration to those weaknesses.  This era is likely to undo their work.

Wed, 10/15/2014 - 23:17 | 5339442 scrappy
scrappy's picture

MDB would say imitation is the most sincere form of flattery.

Well done sir.

Wed, 10/15/2014 - 19:14 | 5337951 nbsharma
nbsharma's picture

What a great article. Fantastic.

Wed, 10/15/2014 - 19:38 | 5338052 enloe creek
enloe creek's picture

What a good day if only for the pure enjoyment of being out of stocks since 2004 and knowing the end of the industrial age is unfolding  in my lifetime. See you at the beginning of the new age in 20 years. Full on mad max depression and population implosion. Petri dish world will cannabalize til it is over  

Wed, 10/15/2014 - 20:23 | 5338297 nathan1234
nathan1234's picture

Small Correction

Should read as in Prison Alone

 

Wed, 10/15/2014 - 21:00 | 5338520 Kina
Kina's picture

The Fed still has hyperinflation in its bag of tricks....

Wed, 10/15/2014 - 22:34 | 5339170 The Joker
The Joker's picture

Excellent.

Wed, 10/15/2014 - 23:09 | 5339403 red1chief
red1chief's picture

So the Fed's balance sheet is $4.5 trillion. Why not $45 trillion? They don't care how unpopular it is, they'll keep up the QE's.

Thu, 10/16/2014 - 02:31 | 5340002 Global Observer
Global Observer's picture

But what is profoundly different this time is that the Fed is out of dry powder. Its can’t slash the discount rate as Bernanke did in August 2007 or continuously reduce it federal funds target on a trip from 6% all the way down to zero. Nor can it resort to massive balance sheet expansion. That card has been played and a replay would only spook the market even more.

 

No, the Fed is not out of dry powder. It can go to negative negative interest rates and expand its balance sheet even further. The only players left in the market all understand the game and no one is going to get spooked by Fed actions.

 

The Fed may not reduce the interest rates further and may not expand its balance sheet further, not because it cannot, but because a stock market correction from historical highs cannot be cited as a reason to do so especially after claiming a "strong recovery" and "low unemployment rate". So the stock market will be allowed to crash, because the objective of the financial repression was to drive all savings into the stock market, crash the stock market and wipe the savings out.

Thu, 10/16/2014 - 13:38 | 5342347 Cheduba
Cheduba's picture

The Fed failed to realize, the Fed failed to realize.  Will everyone stop it with that nonsense?  The Federal Reserve is fulfilling precisely its goals as planned.

First by inflation, then by deflation they steal everything from us.

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