Financial Repression Is Now "In Play"

Tyler Durden's picture

Submitted by Gordon T Long via,


The Central Bankers have clearly painted themselves into a corner as a result of their self-inflicted, extended period of “cheap money”.  Their policies have fostered malinvestment , excessive leverage and a speculative casino approach to investments. Investors forced to take on excess risk for yield  and scalp speculative investment returns, must operate in an unstable financial environment ripe for a  major correction.  A correction because of the  high degree of market correlation that likely would be instantaneously contagious across all global financial markets.

Any correction more than 10% must be stopped. As a result of the level of instability, even a 10% corrective consolidation could get quickly out of control, so any correction becomes a major risk. What the central bankers are acutely aware of is:

  • If Collateral Values were to fall with the excess financial leverage currently in place, it would create a domino effect of margin calls, counter-party risk and immediate withdrawals and flight to areas of perceived safety.
  • The already massively underfunded pension sector (which is now beginning to experience the onslaught of baby boomers retiring) would see their remaining assets impaired. This could lead to social and political pressures that would be simply unmanageable for our policy leaders.
  • A falling stock market is the surest way of alarming consumers and signalling that things are not as “OK” as the media mantra  has continuously brain washed them into believing. In a 70% consumption economy, a worried consumer almost guarantees a further  economic slowdown and a potential recession.

As our western society continues to consume more than it consumes, productivity is not increasing at the rate that justifies the developed nations standard of living as well as the current levels of equity markets. A possible corrective draw-down to the degree shown in this chart is simply “out of the question”!  The central bankers acutely aware of this.



The markets are presently, temporarily held up due primarily to three factors:

  • Historic levels of Corporate Stock Buybacks,
  • The chasing of dividend paying stocks for investment yield in a NIRP environment,
  • Unusual Foreign Central Bank buying (example: SNB)

Professionals, institutions, hedge funds etc have been steadily lightening up on equity markets (or simply leaving completely) leaving the public holding the back.

It is estimated that the $325B that will leave the US equity markets in 2017 will be replaced by an artificial $450B of corporations buying their stocks. With corporate cash flows now falling and debt burdens triggering potential credit rating downgrades, this game is quickly slowing. The central bankers are aware of this.



The Market Technicians of all persuasions are almost unanimously calling for a major correction. What is most troubling here is that their indicators are not just short and intermediate term measures but critical long term indicators.

  • KONDRATIEFF CYCLE: The 55 Year generational Kondratieff Cycle  shows an overdue major downturn with a cleansing of debt as part of the end to what has been termed the “Debt Supper Cycle”,
  • DEMOGRAPHIC CYCLES: Harry Dent has done some major  work on Demographic Cycles and cycles overall. I interviewed him for the Financial Repression Authority where you can find the video and he lays out the seriousness of the shifting demographics and how it overlays of many different types of cycles he has studied.



The technicians who study Elliott Wave see clear evidence that we are now completing a multi-decade topping pattern in the form of a classic megaphone top.


Chart courtesy of Robert McHugh

The central bankers are aware of this.


I could keep on illustrating the types of warnings we are seeing, but let me share what the central bankers likely most concerned about regarding Correlation, Liquidity and Volatility ETPs.

The markets have become so correlated (think of this as everyone on the same side of the boat) with asset correlations not only being higher, but the correlations themselves are becoming more correlated. While traditionally rising cross-asset volatility has resulted in volatility spikes, that is no longer the case due to outright vol suppression by central banks. While central banks may have given the superficial impression of stability by pressuring volatility, they have also collapsed liquidity in the process, leading to less liquid markets, a surge in “gaps”, and “jerky moves” that are typical of penny stocks.

The greater the cross asset correlation, the lower the vol, the greater the repression, the more trading illiquidity and wider bid ask-spreads, and ultimately increased “gap risk”, which becomes a feedback loop of its own. Global central banks are now injecting a record $2.5 trillion in fungible liquidity every year – in the process further fragmenting and fracturing an illiquid market which  is only fit for notoriously dangerous “penny stocks.”

“More than $50 billion has poured into low-volatility indexed exchange-traded funds over the past five years or so, in the wake of the 2008-09 market meltdown. There are now 14 “lo-vol” ETFs with assets exceeding $100 million each, and many more with less. Whenever the market hits a pothole, these ETFs enjoy a bump-up in assets.”


Even more concerning are Volatility ETPs (Exchange Traded Products) which are derivative of some underlying asset. Volatility ETFs are particularly strange animals since you’re buying a derivative (ETF) on a derivative (the futures contract) which itself is based on a derivative (the implied volatility of options) and those options themselves of course are derivatives which themselves are based on the S&P 500. Getting the picture? The folks at Capital Exploits warn:

….everyone is on the low volatility side of the boat, because the central banks have managed to create a sense of calm in the markets exhibited by record lows in volatility and  investor have used linear thinking extrapolated well into the future assuming ever greater risk ignoring market cycles and extremes at their peril.


Every time you sell volatility you get paid by the counter-party who is typically hedging the volatility (going long) of a particular position and paying you for the privilege. This is not unlike paying a home insurance premium where the insurer takes the ultimate risk of your house burning down and you pay them for the privilege. The difference however between selling volatility in order to protect against an underlying position and selling volatility in order to receive the yield created is enormous. And yet this is the game being played.


The central banks have managed to create a sense of calm in the markets exhibited by record lows in volatility and for their part Joe Sixpack investor has used linear thinking extrapolated well into the future assuming ever greater risk ignoring market cycles and extremes at their peril.

Again, none of this is going unnoticed by t increasingly worried central bankers.


So what can the central bankers be expected to do? We laid out this road-map at the Financial Repression Authority well over a year ago. We anticipated in our macro-prudential research much of what has now become mainstream discussion:

  • Helicopter Money (now openly discussed)
  • Fiscal Infrastructure Stimulus (has become part of all candidates election platforms)
  • Collateral Guarantees
    • Buying Corporate Bonds – DONE (ECB, BOE)
    • PLUS more on Collateral Guarantees


We now believe the Central Bankers and Federal Reserve specifically is preparing for more in the way of Collateral Guarantees.

We believe it will actually take the form of direct buying the US stock market similar to what the Bank of Japan is  already doing with ETFs.


My long time Macro Analytics Co-Host, John Rubino concludes in his most recent writing “Flood Gates Begin to Open“:

Individual countries have in the past tried “temporarily higher rates of inflation,” and the result has always and everywhere been a kind of runaway train that either jumps the tracks or slams into some stationary object with ugly results. In other words, the higher consumption and investment that might initially be generated by rising inflation are more than offset by the greater instability that such a policy guarantees.

But never before has the whole world entered monetary panic mode at the same time, which implies that little about what’s coming can be said with certainty. It’s at least probable that a combination of massive deficit spending and effectively unlimited money creation will indeed generate “growth” of some kind. But it’s also probable that once started this process will spin quickly out of control, as everyone realizes that in a world where governments are actively generating inflation (that is, actively devaluing their currencies) it makes sense to borrow as much as possible and spend the proceeds on whatever real things are available, at whatever price. Whether the result is called a crack-up boom or runaway demand-pull inflation or some new term economists coin to shift the blame, it will be an epic mess.

And apparently it’s coming soon.

It is our considered opinion that the monetary policy setters are presently even more worried about the current global economic situation than we are – if that is possible?

This is evident because over the last 14 days Fed Chair Janet Yellen, former Treasury Secretary Lawrence Summers and JP Morgan have all been out talking openly and publicly about the possible consideration of policy changes that would allow the Federal Reserve to buy US equitiesThese releases must be seen as trial balloons to condition expectations.

Japan and Switzerland amongst others are already doing it (as we previously reported) , while the ECB is also floating its own trial balloon on the same subject.

If you want to know what could create a Minsky Melt-up, this is it!

Here is our latest Financial Repression Authority Macro Map  illustrating what we see unfolding. 


We believe the dye has been cast!

The US Federal Reserve can soon be expected  to get congressional approval for equity purchases.  

Of course this will take a post election scare and a new congress to receive.

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Mango327's picture

Janet's gotta find another live vein to keep shooting heroin into...

If Janet Yellen Was A Doctor...

1980XLS's picture

Janet is just  tool.

Soros is pulling the strings

Manthong's picture


Well that sound pretty reasonable especially considering that the government and F’n Fed has totally destroyed the free market system and price discovery.

Jack Oliver's picture

'Price Discovery' LOL !! What's that ????

silverer's picture

They can't remember. Now they won't know what it is even if they do discover it.

Loftie's picture
Loftie (not verified) silverer Oct 17, 2016 9:30 PM

"productivity is not increasing"

We are too busy killing brown people.

philipat's picture

Hey Loftie, previously known as mofio then santafe then Aristotle of Greece then Gargoyle then bleu then oops then most recently lance-a-lot.

You are a serial spammer and a serial pain in the ass. Might I politely suggest that you go fuck yourself? And get a life.

PS. You might have noticed that my attempt to expose you for what you are is always the same. That’s because your Spam is always the same (Using fake links to your BS site which has no connection to your comments, which are deliberately dramatic to encourage people to click on the fake link) so it seems only fair that my exposure of your crap should also always be the same. An eye for an eye.


Archibald Buttle's picture

had to give you a +1 for your commitment to this particular cause. keep up the good work!

Tall Tom's picture





Loftie actually makes a comment, usially piss poor, shallow, but different, and then pastes a link to his Biblicism Institute site.


Phillipat just cuts and pastes that same exact message underneath all of Loftie's posts. In a sense both are just spamming..


Imagine if I wrote the same response to you, everytime that I saw your name, one hundred times.

Would you appreciate that?

Would the community appreciate that?

Would Tyler appreciate that?


No. No. No?  Of course I would not do that. It would get old fast.


The spammers that irritate me are the ones that write, "I earned over $1 Gazillion last month in my spare time."

Loftie is rather benign considering his spamming of his site. I just ignore it.

Archibald Buttle's picture

i don't click on loftie (or any of its other accounts) links. just trying to give positive feedback to phillipat for sticking to its principles. i would think you, of all people, would respect that type of commitment.

Tall Tom's picture





No. The article states...


As our western society continues to consume more than it consumes


Okay...Now I do not know how it is possible to consume more than I can consume, as if I consume it, then it is evident that it did not exceed my ability to consume it


OH... It consumes more than it PRODUCES?


That has been evident for the past two decades or more. Silly me...Actually reading this.

Luc X. Ifer's picture

you can't escape reality ... you can pretend not seeing or avoiding it for so long ...

creeko's picture

Soros is a puppet.  Throxar calls the shots.

UnschooledAustrianEconomist's picture

I thought I heard it all at least once. Who the fuck is Throxar?

Dr. Spin's picture

A figment of Creeko's imagination,,,


Archibald Buttle's picture

dude, can't you read? obviously Throxar is the guy who calls the shots! oh, wait... is creeko "accredited?"

Theta_Burn's picture

Coordinated theme from financial manipulation, to hiring retards to "interfere in internal politics" to further a retarded agenda..

Anyone surprised? Hands? anyone?

These dems boy, have such a lock on our daily perception its frightening..

In the meantime

Peter f---ing Gabriel San f---ing Jacinto..



jdow's picture

I believe your study is "dead-on".  Direct equity purchases by the Fed are the only thing that will allow them to wiggle out of the mess they have created.

38BWD22's picture



It is very plausible.  For that reason (and among others), holding some equities is a good idea.  Diversification has always been a good idea.

The stocks can be sold once the markets have a big upswing.  Then buy any gold that you can get your hands on.

Fisherman Blue's picture

You will be priced out of the gold market.

RaceToTheBottom's picture

Please read this book:  "Market timing for Dummies".

I didn't like it but my timing is pathetic....

Jack Oliver's picture

There is no way out - ONLY war !! 

There was a way out (controlling the world's resources) but that clearly hasn't worked - thanks to Putin !!

UnschooledAustrianEconomist's picture

Putin killed the NWO. By cutting of the banksters and their cronies from the Russian/Siberian resources they desperately need for further growth/monetarization of ressources. Not a lot of people who understand, bro.

The bastards course the day they lost Jelzin.

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) UnschooledAustrianEconomist Oct 18, 2016 12:23 AM

Wasn't just Putin. Russia has the worlds most formidable arsenal by a long shot. They invested wisely. USA can not touch them. It is not possible to "first strike" Russia.

The game they are playing only works with absolute control. Russia is the foil that the 3rd Reich was trying to be. The foil to the fuckiing Jew bankers.

daveO's picture

It's only a mess if you are one of the plebes/debt slaves. They are engineering a hostile takeover of the economy. It's Communism through the back door since Americans have never been accepting of it upfront! If Trump gets elected, they will crash the markets, like the author implies, in order to strong arm Congress into pouring on the juice and hastening the takeover. If Hildabeast is elected, DC won't even pretend to be 'rescuing' the markets.

SallySnyd's picture

  Here is an interesting look at how the Federal Reserve, by its own admission, has deliberately manipulated the stock market:


This explains why valuations have become uncoupled from reality.

Ausonius's picture

I suspect that the Fed is already buying equities through assorted proxy banks: either by pressuring them to invest via a threat to cut off "free money," or by just the opposite, depending on the reaction of the bank's hierarchy.

Bringing it out in the open and legalizing such investments will make it easier for them to hyper-inflate, which they stupidly think is the solution in their "new economy," but of course it will actually lead to the Weimar-style collapse of everything. 

Paul John Smith's picture

"... As our western society continues to consume more than it consumes ..."

(that's a weird turn of phrase)

soyungato's picture

An occasional trip to the mall gave me the same feeling. Consumers are consuming more than they need to consume. There is nothing I want to or need to buy but there they are, buying and buying all those garbage......

Chippewa Partners's picture

Main Street.  Clueless and getting poorer.

Business as usual for D.C.!


Nothing will change until it does.





Dragon HAwk's picture

Sheep wake up when the stock market crashes, who would have Thunked..

benbushiii's picture

Eventually the tide will go out and the banksters will be caught with their pants down.  Fooling everyone all the time usually ends in a revolution; but this time the revolution will be global in nature.  Wouldn't it be a strange turn of events if the 99% co-ordinate a global take down of the 1% and actually manage to make it work.  Real work for real earnings, no more financialization.  Wars have obfuscated this course in the past, but the Central Bank co-ordinations may have created their own achilles heel.

Archibald Buttle's picture

what if they have a war and everybody comes, but they just don't behave the way the order-givers expect? that might get interesting.

Codwell's picture

You're not going to beat the Fed. The only thing an investor can do is accurately anticipate the Fed's future actions and bet accordingly.


The Federal govt and central banks have become so powerful they create truth and reality.  Whether it's illusory economic numbers or even criminal prosecutions, they manufacture the reality they desire.

So far the illusions have worked very well. Nearly everyone is buying into it.

Stan Smith's picture

   Agreed.   It certainly makes it all feel like House of Cards or Game of Thrones doesnt it?

Infield_Fly's picture
Infield_Fly (not verified) Oct 17, 2016 6:17 PM

Now WH nigga can done say he did the economy good - lookie at dat der stawk market folks!!!

Muppet's picture

Started with repeal of Glass-Steagall and FASB Mark-to-Market. Solutions need start there too.

Fisherman Blue's picture

You think they will expose that they are all insolvant?

Tremel Jackson's picture

So like, hey Scoob— better BTFD before the FED beats you to it.

gregga777's picture

It's all the fault of the Goldman Sachs Feral Reserve System. They are responsible for our economic mess.

UnschooledAustrianEconomist's picture

It's the capitalistic (NOT free market!) growth dependant monetary system running into the end of growth. Could have been Lehman instead of Goldman, same story, no difference.

ThrowAwayYourTV's picture

0 and neg interest rates are spawning some of the biggest idiots of all time. That past couple of years have been filled with line after line of 60 thousand dollar pleasure boats blowing thru $300 of gas every weekend just to bounce up and down on the water while yelling and screaming. Along with line after line of delusional brain dead shopping zombie sheep herds wandering around town in waves. And thousand upon thousands of smiling, laughing, talking heads pretending to be happy about going into debt 50 and 75 thousand dollars, BUT! without interest.

Lord please help the human race. A giant solar flare knocking out every form of electricity and energy for the next thousand years would be great. TY.

Archibald Buttle's picture

that was a nice summation of our current predicament. i, also, have been pinning my hopes on a giant solar flare to liberate the debt slaves from their shackles. they will not do it voluntarily, the morons. if ever an entire planet needed a swift kick in the ass, this surely has to be it.

galant's picture

The United States heads towards becoming a classic neo-Fascist State.

With government buying into major corporations,  manipulating  the media as instruments of propaganda -  becomes in effect a one-party state Hitler or Mussolini would have been proud of.

UnschooledAustrianEconomist's picture

It's not the government running the banks and corporations, it's the banks and corporations running the government.

Agreed on the neo-fascism, not unly in the States, but all over the western world.

hedgiex's picture

Nice charts but all these antiquated theories do not apply in deformed markets unprecednted in history. Sad but true that the preys have been warned not just yesterday but their DNAs for self immolation cannot be cured. 

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Oct 17, 2016 11:24 PM

Fucking banks own EVERYTHING. EVERYTHING. There are very few corporations that are not at least 40% owned by banks. Most are at 60% or higher. There are only around 1200 corporations that own 80+% of all businesses globally.

Not even ZH will print that story, unless Trump wins.

Storm Chaser's picture

Wow!  This is absolutely one of the best articles ZH ever posted!  Gordon Long did not give odds on the chance of the Fed succeeding in creating this "Minsky meltup".  Does the Fed balance sheet truly NOT MATTER AT ALL?  Also, it is not clear whether Gordon thinks this will be a pre-emptive or reactive (to stocks correcting first) move.  The mere fact that the Fed, as already proven, can single-handedly control the movement of the US stock market at will is just f'ing MIND BOGGLING!  It shows "free market" has been nothing but an illusion for a long time...