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Marc Faber: "The Best Thing The Fed Could Do For Markets Wold Be To Collectively Resign"
In a Bloomberg TV interview following today's quixotic "QE3/non-QE3 announcement, which is Operation Twist 2, but not LSAP, and ushers in economic recession, even as it sends risk assets soaring, and somehow pushes the 2 Year a whopping 20 bps tighter so buy,buy, buy" and is really very much ado about nothing, the always outspoken Marc Faber had some very choice words about life, the universe and especially the residents of the Marriner Eccles building. While there still appears to be some confusions as to whether today's Fed decision to peg rates at zero for 2 years is QE3 or not, Faber believes that the decision to not enact more Large Scale Asset Purchases is "the right thing" although when it comes to the market, it "is more likely to move still lower. We are very oversold. We can have a rebound like we did today, maybe we'll have a rebound next week or so, but in general I think we will test the July lows of last year, the S&P at 1,010. After that, probably we'll get probably a QE3 announcement."
On why Bernanke did not announce yet another asset purchasing round: "Essentially they spent their bullets. It is very difficult to follow through with QE3 right here, because you have gold prices going ballistic, and you have the dollar being very weak, and so there are unintended consequences with implementing QE3 right here." That said, the surge in markets apparently completely ignores that QE1 and 2 did nothing for the economy, although the goosing of the RUT should suffice. What is unclear is who will end up buying the $2.4 trillion in bonds coming down the tube. Faber also had some choice words about Treasurys: "I personally think the Treasury market, the long-dated, are a bubble and it will be one of the worst investments for the longer term if you buy a 10-year, a 30-year U.S. Treasury so I'm a bit puzzled that Treasuries are now yielding, are essentially near record lows." Naturally, Faber does not think gold is in a bubble, and as to what one can do with gold, his response is that "you give your girlfriend copper rings and I give them gold rings and I keep them longer." Indeed, no bubble there.
As to how one should trade stocks, he says: "I think right now the technical picture is so horrible that I would use a rebound as a lightning up opportunity. I think [equities] will move lower... maybe after three months people will wake up and scratch their heads and say now, we know why it started to go down, because maybe there is geo political problems, maybe the Middle East blows up, maybe the economy is horrible."
Last but not least is his suggestion what the Fed should do: "The best [the Fed] could do for markets would be to collectively resign." Precisely, which is why it will never happen.
Full clip:
And full transcript:
Faber on whether he thinks the Fed did the right thing by keeping rates low:
"I think they did the right thing that they didn't allow QE3. They can watch the reaction of assets, whether they will go lower. I think the market is more likely to move still lower. We are very oversold. We can have a rebound like we did today, maybe we'll have a rebound next week or so, but in general I think we will test the July lows of last year, the S&P at 1,010. After that, probably we'll get probably a QE3 announcement."
On why he thinks the Fed is waiting on QE3:
"I think the Fed is underestimating the severity of the coming economic downturn. Essentially they spent their bullets. It is very difficult to follow through with QE3 right here, because you have gold prices going ballistic, and you have the dollar being very weak, and so there are unintended consequences with implementing QE3 right here."
On what Faber thinks the Fed should do:
"The best [the Fed] could do for markets would be to collectively resign…I think sometimes the best is to do nothing. I welcome the decision, at least today, that they aren't doing anything worse than what they have already done."
On whether it makes sense to provide any kind of stimulus:
"What has QE1 and QE2 done for the labor markets? Nothing at all. It's done nothing for the housing markets. It's lifted stocks and it created wider wealth inequality in a sense that people who own assets have done very well, and people that are the lower-income recipients groups, they are hurt by rising energy prices and food prices."
On what should be done for the U.S. economy:
"From 1981 to 2007, we have an economy that was living beyond its means. As a result of continued debt accumulation, GDP was higher than would otherwise have been the case. Now we have a period of sub-par growth that can last for quite some time now, and like in the case of Japan after 1989, people instead of being encouraged to spend, they should be encouraged to save more, and the U.S. should save more and spend less. And then capital spending will essentially pick up."
On the manic behavior in markets:
"I personally think the Treasury market, the long-dated, are a bubble and it will be one of the worst investments for the longer term if you buy a 10-year, a 30-year U.S. Treasury so I'm a bit puzzled that Treasuries are now yielding, are essentially near record lows. I would rather sell Treasuries."
"The stock market peaked out on the 2nd of May on the S&P at 1370. So we're now around 1010. For many stocks we're down 20% or so. We're very oversold. I think a rebound is coming but you can forget about a new high. That is out of the question. Because the technical picture is horrible, horrible. "
On why investors are continuing to move to Treasuries:
"I've been in this business for 40 years and on many occasions, nothing made sense to me….I think the Treasury market is another example of a gigantic bubble. The problem with the Federal Reserve policy of essentially zero interest rates is that they are essentially throwing money at the system, but they don't control where the money will flow to. It can flow at some point into commodity-related stocks. It can flow into gold, oil, treasuries, but it doesn't flow evenly into these assets. In my opinion, the Treasury, the long-dated Treasuries are essentially the short of the century thing here."
On whether gold is a bubble:
"I don't think it is a bubble, but I think the gold market has exploded to the upside recently and the correction is overdue. But as I have always maintained for the last 12 years, every responsible adult should gradually accumulate gold, because not owning any gold is the trouble with government. I don't understand. People of Bloomberg, I hardly know anyone who owns any gold physically. All of the Bloomberg employees are intelligent people. They listen to the news every day. They make the news every day. Hardly anyone owns any gold.”
On what you can do with gold:
"I disagree [that you can't do anything with gold.] You give your girlfriend copper rings and I give them gold rings and I keep them longer."
On how Faber would play the markets right now:
"I think right now the technical picture is so horrible that I would use a rebound as a lightning up opportunity. I think [equities] will move lower. I mean, some say you should move back into emerging economies because the fundamentals of emerging economies are far better than the fundamentals of European countries and the fundamentals of the United States. This is something I will consider."
"The only thing I have to say, basically the market has sold off in such a rapid way and with so much momentum that I am smelling as if something really wrong happens in the next two or three months, because the market is a discounting mechanism. Like March 2009 the market started to go up and people were baffled why it started to go up. Now it starts to go down, and maybe after three months people will wake up and scratch their heads and say now, we know why it started to go down, because maybe there is geo political problems, maybe the Middle East blows up, maybe the economy is horrible."
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I saw that today live...I was impressed.
Odd that Ratigan can recognize a bought congress, but not carry the same logic forward...to the bought executive and bought SCOTUS.
Until campaign finance is completely reformed and the multinationals and lobbyists are kicked to the curb we will continue to see the same captured regulatory and tax structures, the same trade imbalances and offshoring, and the same level of dysfunctional legislative kabukkake.
"Gold stocks exploded off the lows even when GLD and SLV were getting pushed back."
gold miners clearly have their own dynamic ...which I do not fully understand yet but have hung tough with American Century Global Gold .... which has a healthy dose of performing juniors
By the way.... have been fan of Faber since 90s (know some folks in Suisse that worked with him in old days in Zurich) ... but he should regularly disclose that he sits on the board of a medium sized miner ... Ivanhoe I think
why do old men like to go to thailand? hmmm?
deleted
i think we should ask the liberal states and dc to leave the republic
I think we should let the tax dollar eating, non-contributing southern states secede; we promise not to put up a fight this time.
So with ZIRP guaranteed for two more years, the spread of two year treasuries over short bills should be a pretty accurate measure of Bernanke's integrity. The greater the spread, the more the market thinks he's a liar, and his guarantee of ZIRP is something less than a guarantee. This will be interesting to watch over time. I suggest a Bernanke Integrity Index which tracks this spread at least daily. I'll do it on my machine, but maybe ZH wants to make this a recurring blog item.
EDIT: The Index begins today with an inaugural Bernanke Integrity value of 17 [(19 bps - 2 bps) * 10000]. Unfortunately, the higher the value, the less integrity he has. So maybe I should call it the Bernanke Dishonesty Index. The higher the number, the more dishonest he is.
"Bernanke's integrity"? Ha, ha, ha!
Tuco
Okay ... hear me out.
Say you're richer than God and you see the writing on the wall (i.e., western economies are doomed because of entitlements). What do you do?
Well, how about bring the whole thing down hard and fast? Why?
1) the system is doomed so it needs to be reset thus the "bring it down hard" part, and
2) if left to it's own devices western civilization would decay over a long period taking down with it infrastructure, academia, industrial capacity, etc so thus "bring it down fast".
What would you do if you had more money than God?
I would end world famine and hunger for one thing. But, then again I am not a demon as are those who perpetrated this cataclysm.
Tuco
So we're doomed because of entitlements and you would just do entitlements on a global scale? Because it "feels" right, right?
Or did you take the "richer than God" part literally, stimpy?
nothing wrong with ending world hunger. that's pretty noble.
if i were filthy rich, i'd just buy me some decent properties and spend the rest of my life traveling and living in different countries without worrying about what anyone else's doing. life is too stressful as it is.
Fair enough. Beats the hell out of being a conrol freak tyrant like the demon elite.
Tuco
Put people who ask idiotic hypothetical questions based on false premises (like the existence of industrial capacity, or doom from entitlements, or "bringing it down fast" not having the same deleterious effects as slow decay) in a world of hurt, "Stimpy".
"The Best Thing The Fed Could Do For Markets Would Be To Collectively Resign" Gee, I feel that way about everyone in Washington
1758.6/38.6 = 45.6
Masterful.
All these other 'professional fund managers' say one thing.
Faber says another.
Often, it's the opposite.
the crucial point faber is making, is that without qe3 liquidity (into the market) the market will begin selling again. the tech damage from the massive selling last few days is just too brutal for a major buy up. so he is right when he says selling on rallies, you can lock that.
thank you. i mean seriously look at your damn charts people. please show me the number of times in market history where of all the major indexes getting donkey punched 20-25% in two weeks and the markets immediately rally to new highs without a subsequent sell-off or two. i'd love to see it.
Keep in mind that probably 25% of Tea Partiers also truly believe The Rapture is coming, the sooner the better. So they don't care that they almost brought about a worldwide collapse...they welcome it
There ought to be an IQ test before anyone's allowed to run for office:
Q1 "Is the Earth flat?"
Palin, Bachmann etc wouldn't make it through...I bet they'd snare a few others like Romney (and Barney Frank) too.
You are so full of it... it must be squirting out of every orafice! I can hardly believe anyone would buy that utterly insane soundbite about the TeaParty. I mean, really! Sigh. I guess I have to give you an exact analogy so you can understand how completely and utterly misguided and foolish you are. So here goes.
This is a story of a wife, a husband, and a collection agent (or perhaps better a FICO score computing agent).
The wife spends her days applying for every credit card she can find. As she receives them, she diligently proceeds to charge them up to the limit to, well, at least she says "boost the economy" by filling her closets and home and garage with super expensive clothes, jewelry and other goodies that catch her fancy.
The husband begs, pleads, rationally explains, tries every trick in the book to convince her to stop spending and stop digging them deeper and deeper into debt. But as we know, he fails miserably, partly because he... perish the thought... goes to work every day.
Eventually the wife has every credit card know to man... or woman... and can no longer get more to pay minimum payments or transfer balances to new credit cards.
So eventually we arrive at the day when some big honking dude who works for the collection agency during the day (and rides with Hell's Angels on the weekends)... shows up at the front door and starts threatening the wife about paying her debts.
Who is the villian in your opinion? Answer? The husband. That is precisely your claim. The one who did not want the debt, did not enjoy the debt, did not approve of the debt, did not agree to the debt, and has been philosophically opposed to debt his whole life.
In your view, he is the bad guy.
And you want to accuse others of being morons? Give me a break. While religious conservatives can indeed be amazingly stupid and/or disingenuous, you have proved yourself even more stupid or disingenuous than they to accuse those in the TeaParty who advocate lower spending or balanced budget as the cause of these problems. That's quite a feat of intellectual dishonesty or stupidity. Shame on you.
+2
Tuco
+1099.
John Kerry D-Sen. Massachusettes. has been in the media lately saying nothing short of "We need to stop giving the tea party (a subset of duly elected representatives in congress) press coverage. Thier ideas are absurd and do not reflect the real world"
He needs to go back to boston college. they a had a prof on bloomberg today (in addition to faber) who explained that the big scam going on is the taxation divide between generations. Kerry, Pelosi, McCain, Dodd, and thier ilk "got thiers" through a crooked tax code. Check Kerry's 2004 returns.
Now when the tea party says "hey let me have some deductions (non-revenues) too" the establshment cries foul.
No religion needed. just basic facts about the tax evading D/Rs vs the Tea party thats says what is good for the goose is good for the gander.
The article is on bloomberg here http://www.bloomberg.com/video/73742294/
-- Laurence Kotlikoff, professor of economics at Boston University
Bzzzt...FAIL!
Kerry got his by marrying an heiress...and the TP are the very ones fighting tooth and nail to keep his taxes from being raised.
Fool: definitely. Wise: Not at all.
Back to the trees with you!
Yes....the Tea Party's #1 goal is make sure John Kerry doesn't pay more taxes. Apparently you are of the laughable impression that the Kerry's pay the same percentage of tax as the average citizen, REGARDLESS of what tax bracket they supposedly fall into.
You honestly believe that 'tax the rich' translates to 'tax the rich only and eliminate their encyclopedia of loopholes', don't you? Most Tea Party folks see right through that classic redistributive bullshit line and fully understand that 'tax the rich' literally translates to: TAX EVERYONE.
Wake up dude. Stop chugging the Elephant or Donkey flavored kool-aid.
P.S. Don't worry, the Tea Party has been sufficiently co-opted by the establishment to render them effectively toothless. Witness the recent 'debt-ceiling-deal', wherein most of the freshmen 'tea party' congressmen voted to shank their constituencies by voting FOR increasing the debt, with almost zero tangible up-front cuts, in addition to creating the unconstitutional 'super-congress' monster.
25%? That's nothing.
98% of Democrats thought Obama was the Messiah. Worse, at least 50% of them still do.
The rapture was May 21st. Gone and past. That clearly explains reduced tax revenues and lower unemployment. Their memories have been erased from our memory and the excel spreadsheets were adjusted from on high.....................but we had TAPE BACKUPS Bitchez!
my ....my ... a little testy are we? getting so viciously personal & poltical ...Republicans stupid & evil ... my views good & brilliant ... that means zero credibility
are you a London rioter ..... so hurt by all the 'unfairness' around you ... you want to take 'matters' into your own hands? Something wicked this way comes ... like the Spanish Civil War ... keep fanning the flames?
Maybe I never drank the kool-aid .... Jim Jones was a major lefty (it was called 'alternative' then) a religous figurehead in 'leading the way' (see "Lean Forward") No Calif/bay Area .. before scandals drove him to Guyana. Be careful before you bite the pill too hard to examine what others have to say before you disparage them.* Ron Paul may never get elected Prez but he is one of the few highlighting the issue of the Federal Reserve System .... and I fell for the media portrayal of him as a semi-crackpot ... never believe what is portrayed to you by any media..... .. but I guess you take you marching orders from HuffPo
*disclosure: I disparage Dennis Kucinich because I feel I have personal knowledge of him as wunderkid mayor of Cleveland which he just about ruined ... but I would never trash Kucinich by saying he is a low IQ idiot .... mainly becaue it would make me look like the idiot. And to Kucinich's credit, while he is primarily looking for a news camera, he has been one of the articulate few, Bernie Sanders also, who has called out the Federal Reserve with Ron Paul
Remember ... stay positive ... always viciously disparge those you disagree with ...
Maybe the economy is horrible? Hahahahahahaha.
Nothing like understatement, hey Mark?
Also, these pretty-boys are utterly, completely, absolutely amazing!!!
When is the last time one of them asked "What can I do with a stock certificate or a bond?", but they actually with a straight face ask a question as terminally absurd as "What can I do with gold if I buy it?". They really, really, really must be neuron-free, these pretty boys and girls.
Really people - what's the solution? It's easy to sit here and say the end is coming. I've been a reader for a few years now, a member for only a few days and while I love the info zh gives I'm baffled at what the message is here. Buy gold, guns and ammo? Are you all ready for that. I give kudos to the Bernank. At least he didn't fold under all the main stream media hype. Maybe Faber is right and he will down the line but we all know that QE3 is game over. It will never end if we issue QE3. I just want our thriving economy back. As Bad Religion sang - "Is it too much to ask?"
"I've been a reader for a few years now, a member for only a few days and while I love the info zh gives I'm baffled at what the message is here."
You are assuming that there is a message here? Why? ZH isn't require to issue a 'mission statement'. Perhaps the ZH mission, if one exists, is simply to put on display the foibles of the economy and financial sector and let all draw their own conclusions?
If you want a 'thriving economy back' you are in for a very long wait. Before we can have a thriving economy, in anything but the financial sector, markets have to be allowed to clear, TBTF banks must be allowed to fail, the crooks must be tried and those found guilty must be jailed... Otherwise moral hazard will have ceased to exist.
In the end Mr Market will prevail over the manipulators. It will take time but it will happen.
Who are we kidding? No one is getting tried or going to jail. Rajaratan and Madoff. That's it. REALLY? Where's Dick Fuld? Alan Greenspan? Hammering Hank? You think Moynihan, Geithner, Bernank are getting tried? Never gonna happen. It's nice to talk about but really it's never happening.
Yes, and the Third Reich is going to rule the world for a thousand years tool. Never say never. Revisit Romania in 1989 and see what can happen in "one" day!
Tuco
hear ... hear .... in my lifetime ... Citibank should have failed at least 3 times ... maybe as many as 5 times if you really dig into the gimmicks & crony capitalism.
Is that fair to the hard working, customer-centric local or regional bank taking legitimate business risks every day to stay in biz as it tries to serve & grow it's customer/depositor base?
And why did Wachovia buy the Sandler's toxic sub-prime mortgge portfolio? what greed or idiocy drove them to do this? Or BofA taking on the corrupt of the corrupt, Henry Cisneros's spawn Countrywide Mortgage (even a legitimate excuse that the Fed/Regulators/DeptofTreasury made them do it does not hold water as any prudent back exec would have told the Fed.Regulators to go pound salt)?
These excesses have built up for a long while .. since the 70s ... many many have commmented on this from all poltical & philosophical perspectives. Methinks this is not one of those "why can't we all get along' situations .... The Augean Stables have to be cleaned .... elements of Wall Street have captured the Main Street economy for their own interests .. not the broader country's sadly.
I always held Warren Buffett in respectful regard but am seriously wondering if he says and acts the way he does for pure 'access to power' purposes for his pure biz interests .. and screw the broader US economy or it's contributors.
Re: gold.
Yes I agree that gold has as sound money BUT...there are many other things that people can use as money. Not just silver, but also copper, platinum, paladium, nickel, etc. In fact this is what coins used to be made of.
I haven't yet been able to find a rational explanation of how to VALUE gold; i.e. what is the real or true price of gold?
Also I find it interesting that, as Jim Rogers would say, we are 10-12 years into a commodities bull market and also a stocks bear market. And we are beginning to see total disgust with stocks, REGARDLESS OF VALUATION, and also infatuation with gold, WITHOUT UNDERSTANDING ITS VALUATION.
I mean with equities at least we have models such as PE ratios, cash flow ratios etc. which attempt to demonstrate whether it's more useful to retain paper capital or let that capital produce more paper capital/currency.
There are no such models for gold beyond third grade chart watching (i.e. it's gone up 7 times since 1999, therefore I should buy it).
If we add up global M0 for instance I think it adds up to 7.3 trillion or so which is about equal to the value of gold, which doesn't even include other forms of non-paper money.
Therefore there doesn't appear to be much of a discount in buying gold over retaining paper currency.
Anyway I would think guys like Farber would emphasize the danger of making investment decisions based on what's recently gone up (or down) in price.
Nothing in the above is meant to suggest other than total hatred for the Fed and governments in general, which are all run by the banking cartel, of course.
"And we are beginning to see total disgust with stocks, REGARDLESS OF VALUATION, and also infatuation with gold, WITHOUT UNDERSTANDING ITS VALUATION."
When all markets are manipulated by the creation of enormous amounts of fiat currencies, which distorts all normal price discovery mechanisms, is it any wonder that no one knows the value of anything?
The run up in gold price you are witnessing is caused, in part, by the distortions introduced into markets by central banks in concert with their governments.
People around the world are voting with their pocketbooks. People are saying 'we don't trust you and your printing presses'...
Today you witnessed how distorted the system has become. The Fed said 'no QE'. GS followed up and said the opposite. Who did the equities mkts listen to? Now you know that the Fed achieved the same result as saying 'We are going with more QE' by having GS lie about what the Fed said. The Fed is skating on thin ice, imo, because they have the threat of ANOTHER credit down grade hanging over US Debt Instruments and therefore their cherished FRNs. So, there will be more mechinations going forward, not less, for the Fed has to seam to the ratings agencies to be 'doing the right thing' while in reality they are following the same path that led to the recent down grade.
Perhaps the gold price is the nearest thing we have left of a true price discovery...and it is manipulated by 'paper gold' pricing.
Gold is worth what you can get for it in trade at any nanosecond in time, whether that be fiat federal reserve notes or a new pc.
Tuco
OK so what you are generally saying is that the market for gold is always perfectly efficient? (Because its value = its price = what you can get for it at any nanosecond).
I find this a very tough premise to swallow because, in my experience, NO MARKETS are efficient. They are ALL distorted by an innumerable amount of factors.
This is actually also the problem I have with Peter Schiff, with whom I am in agreement about 99% of things EXCEPT the price of gold. Now - I am not saying that gold is overpriced etc. but its inane to pretend that the market for gold is any more efficient than the market for anything else, including commodities.
Oil for instance, is down about 20% recently while gold is up like 10% I believe. So you mean to tell me that in the LAST MONTH DEMAND for oil has been macerated or supply for oil has exploded? We are talking like a 30% move downward in price of oil when measured in oz. of gold. In about 2 weeks.
I call: A BIG STEAMING PILE OF B.S.
If there will be massive inflation on the horizion, ALL COMMODITIES should be rip roaring higher, oil included, especially because demand for oil is relatively inelastic, IMO.
Also I call B.S. as to the gold miners: NEM, etc. What about gold miners outside the U.S.? For example Polyus Gold, the Russian company? It's stock is actually DOWN this week, while all the American gold companies stock is UP.
So again I call B.S. on on gold at current prices. Wouldn't you rather buy oil instead of gold at these prices, for example?
OK so what you are generally saying is that the market for gold is always perfectly efficient? (Because its value = its price = what you can get for it at any nanosecond).
I find this a very tough premise to swallow because, in my experience, NO MARKETS are efficient. They are ALL distorted by an innumerable amount of factors.
This is actually also the problem I have with Peter Schiff, with whom I am in agreement about 99% of things EXCEPT the price of gold. Now - I am not saying that gold is overpriced etc. but its inane to pretend that the market for gold is any more efficient than the market for anything else, including commodities.
Oil for instance, is down about 20% recently while gold is up like 10% I believe. So you mean to tell me that in the LAST MONTH DEMAND for oil has been macerated or supply for oil has exploded? We are talking like a 30% move downward in price of oil when measured in oz. of gold. In about 2 weeks.
I call: A BIG STEAMING PILE OF B.S.
If there will be massive inflation on the horizion, ALL COMMODITIES should be rip roaring higher, oil included, especially because demand for oil is relatively inelastic, IMO.
Also I call B.S. as to the gold miners: NEM, etc. What about gold miners outside the U.S.? For example Polyus Gold, the Russian company? It's stock is actually DOWN this week, while all the American gold companies stock is UP.
So again I call B.S. on on gold at current prices. Wouldn't you rather buy oil instead of gold at these prices, for example?
BTW, there will be MASSIVE INFLATION IMO, however, markets tend to overshoot: case in point 1981 where the markets were so, so, so very wrong.
In closing: RON PAUL 2012!!
WHY DONT AMERICAN STUDENTS AND THE REST OF THE YOUNGER GENERATION SIMPLY "STARVE" THE GOVERNMENT FROM ITS TAX REVENUES AND STUDENT LOANS INTEREST?
REALLY, CAN 50 MILLION CITIZENS BE ARRESTED?
...NO PROTESTS, NO VIOLENCE...
signed,,,
Arch Duke Ferdinand
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/08/moodys-warns-...
I DON'T KNOW. MAYBE BECAUSE THE STUDENTS ARE ALREADY STARVING AND WOULD RATHER JUST READ BOOKS AND SHIT.
signed,,,,
Serbian Nationalist.
Mainly because 50MM can't be arrested but the first one can. Show me the one with big enough balls and a small enough brain and I'll show you 49,999,999 others that see what happens to the first one and all say; "Fu&k that! I choose to pay."
Ratigan summarizes perfectly- watch this...
http://www.zerohedge.com/contributed/mad-hell#comment-1544953
How to do it?
http://www.huffingtonpost.ca/2011/08/09/jim-flaherty-budget-cuts_n_92195...
And then what....
Bear with me on this theory...
Okay, so BONY Mellon says we're going to charge you to hold your demand deposit... The Bernank says we're going to keep rates low... We see some bank runs in the Eurozone and a decent sized flood of liquidity into dollars... Maybe we see a bank run on B of A.... Now for the theory.
Then we see corporations and wealthy families desiring to hold actual greenback currency in safes/private depositories instead of in a time deposit of any sort... just for extra safety, liquidity and the near-elimination of counterparty risk. Instead of repatriating all this corporate cash on hand, they actually pay a premium to get greenbacks to store in private depositories. So, it's an opportunity cost forgone. In other words, it's an effective interest rate paid for the cost of holding the greenbacks in suitcases sitting in private depositories.
Would not under such a theory that be an effective off-balance spike in interest rates in the form an opportunity cost. If you're cost to acquire the cash, transport the cash, store the cash and mitigate counter-party risk however one might do that comes to 5%, isn't that an effective interest rate even if the Fed Funds Rate is closer to zero that pushes through from the other side. Instead of starting off with $100 and ending up with $105 in the bank, you start off with $100 under the mattress and end with $95 after paying for dog food for the pit bull and a chain. It's still a 5% cost of capital, it just that you and your pet are the new bank. Isn't that the same as the BONY/Mellon value proposition? In such a scenario the last place anyone would want to store the excess balances is in a fractional reserve environment regardless of the "vaulting capabilities" (i.e. Gunsmoke Bank & Trust) such as those touted by JPM a year ago once we have a Euro-zone Lehman event.
Normally such a scenario would be unheard of because of the need to be able to move quickly in and out of positions due to unknowns. Since we have a "date certain" then the cost of entirely mitigating counterparty risk, including the FDIC/Sovereign can now be measured on a time-definite timeline in a slow-growth/no-growth domestic scenario is it not probable that at least a meaningful amount of cash balances may find themselves literally "in the green." If so is that not in itself a spike in rates under the pit bull paradigm? Theoretically the only risk would be missing out on appreciation in equities, but how hard is it to execute on a stock buyback from your own corporation when the greenbacks are sitting in your own corporate treasury? I know it sounds crazy, but think of it as the DOW's version of Death of a Salesman... cut out the middleman.
Wasn't the most powerful weapon the Fed had in the past the dual prongs of flexibility and credibility? Now that they've sacrificed flexibility on the interest rate side if you can assume for argument's sake that the balance sheet is destined for liquidation via upstreaming (http://tradewithdave.com/?p=7173), then the only remaining arrow is credibility which will be destroyed if they move before mid-2013. Is the gamble that the credibility belongs to the chairman and not the FOMC (3 dissenters seem to think so). Isn't this simply a strategy to raise interest rates off-balance sheet without over-strengthening the dollar while nearly guaranteeing a collapse of a Euro TBTF bank(s) into a Euro-zone version of a T-bill and possibly a U.S. TBTF ("We don't need capital") institution regardless of meeting Basel 3.
Sure, you can say "But what about gold?" Yeah, see how you're gold looks over the next two years if real rates are 5% as suggested and I'm a fan of precious metals and see this (the past week withstanding) as yet another supression of real prices although I still fail to understand gold's link with human consciousness. Sure, the argument could be made that "If it's that bad, who cares if our corporate treasury collapses... we'll all be running for the hills." We all know that's not how this works for the next 24 months. This is not a cake walk, but this is musical chairs and there's a seat for everyone except one.
Tell me what I'm missing here.
Dave Harrison
www.tradewithdave.com
Bear with me on this theory...
Okay, so BONY Mellon says we're going to charge you to hold your demand deposit... The Bernank says we're going to keep rates low... We see some bank runs in the Eurozone and a decent sized flood of liquidity into dollars... Maybe we see a bank run on B of A.... Now for the theory.
Then we see corporations and wealthy families desiring to hold actual greenback currency in safes/private depositories instead of in a time deposit of any sort... just for extra safety, liquidity and the near-elimination of counterparty risk. Instead of repatriating all this corporate cash on hand, they actually pay a premium to get greenbacks to store in private depositories. So, it's an opportunity cost forgone. In other words, it's an effective interest rate paid for the cost of holding the greenbacks in suitcases sitting in private depositories.
Would not under such a theory that be an effective off-balance spike in interest rates in the form an opportunity cost. If you're cost to acquire the cash, transport the cash, store the cash and mitigate counter-party risk however one might do that comes to 5%, isn't that an effective interest rate even if the Fed Funds Rate is closer to zero that pushes through from the other side. Instead of starting off with $100 and ending up with $105 in the bank, you start off with $100 under the mattress and end with $95 after paying for dog food for the pit bull and a chain. It's still a 5% cost of capital, it just that you and your pet are the new bank. Isn't that the same as the BONY/Mellon value proposition? In such a scenario the last place anyone would want to store the excess balances is in a fractional reserve environment regardless of the "vaulting capabilities" (i.e. Gunsmoke Bank & Trust) such as those touted by JPM a year ago once we have a Euro-zone Lehman event.
Normally such a scenario would be unheard of because of the need to be able to move quickly in and out of positions due to unknowns. Since we have a "date certain" then the cost of entirely mitigating counterparty risk, including the FDIC/Sovereign can now be measured on a time-definite timeline in a slow-growth/no-growth domestic scenario is it not probable that at least a meaningful amount of cash balances may find themselves literally "in the green." If so is that not in itself a spike in rates under the pit bull paradigm? Theoretically the only risk would be missing out on appreciation in equities, but how hard is it to execute on a stock buyback from your own corporation when the greenbacks are sitting in your own corporate treasury? I know it sounds crazy, but think of it as the DOW's version of Death of a Salesman... cut out the middleman.
Wasn't the most powerful weapon the Fed had in the past the dual prongs of flexibility and credibility? Now that they've sacrificed flexibility on the interest rate side if you can assume for argument's sake that the balance sheet is destined for liquidation via upstreaming (http://tradewithdave.com/?p=7173), then the only remaining arrow is credibility which will be destroyed if they move before mid-2013. Is the gamble that the credibility belongs to the chairman and not the FOMC (3 dissenters seem to think so). Isn't this simply a strategy to raise interest rates off-balance sheet without over-strengthening the dollar while nearly guaranteeing a collapse of a Euro TBTF bank(s) into a Euro-zone version of a T-bill and possibly a U.S. TBTF ("We don't need capital") institution regardless of meeting Basel 3.
Sure, you can say "But what about gold?" Yeah, see how you're gold looks over the next two years if real rates are 5% as suggested and I'm a fan of precious metals and see this (the past week withstanding) as yet another supression of real prices although I still fail to understand gold's link with human consciousness. Sure, the argument could be made that "If it's that bad, who cares if our corporate treasury collapses... we'll all be running for the hills." We all know that's not how this works for the next 24 months. This is not a cake walk, but this is musical chairs and there's a seat for everyone except one.
Tell me what I'm missing here.
Dave Harrison
www.tradewithdave.com
Interesting ideas Dave.
Why should one hold FRNs which do have counterparty risk and are being devalued daily when one could hold PMs instead.
No matter how you slice it the purchasing power of FRNs fluctuate, mostly down, at the whim of the Fed.
Holding FRNs under the mattress since 2000 has returned nothing... in fact a loss of ~30% due to Fed induced FRN purchasing power loss.
Meanwhile gold has done what?
Yes.
I generally don't engage in debates about whether or not a petro-dollar backed by the U.S. military (i.e. FRN) has a value. Plenty of other folks, especially here on ZH, debate that issue much better than I would. Once clean water derivatives as those presented by CITI last week as being a market-maker in the next twenty years pre-empt oil as a value unit, then I would be willing to devalue the U.S. military industrial complex, until then I think folks will probably keep driving cars and using their debit cards not to discount the comfort of a monster box in each color or the abililty of governments to make it rain on demand via GPS.
well aren't you Mr. Tiddly-winks then. In fact i think you should change your name to that. Then you can introduce yourself: "hello, I'm tradewithdave but you can call me Mr. Tiddly-winks!" THEN you can go on about "how they cotrol the weather" but "that's okay because they allow you to control it via your GPS in your car" with a more appealing appellation. (or is it epithet...hmmm.)
I don't know about your theory, but why would they go to all of the trouble to get greenbacks and still keep them in the untrustworthy banks?! That would be stupid beyond belief, at least for me.
Tuco
I aspire to non-physical violence in every circumstance (contrary to alleged pro-life religionists who's highest sacrament is war and death, for righteous Godly cause, of course).
I'd sooner agree to the death penalty for these banksters and politicians than any murderer on death row right now.
A quick and painless death is more than they deserve. Tattoo 'Banker' on their naked ass and drop them from a plane into one of these countries they've destabilized... right into the middle of a protest, riot, or battle.
marc faber is a champion.... he doesnt always get it 100%.. but he sure gets close... what a hero of the truth
http://www.silverrevolucion.com/story.php?title=marc-faber-the-best-thin...
Every responsible adult please step forward
[crickets]
Anyone notice that Marc referred to "your girlfriend" in the singular but when refering to his he referred to "them" in the plural? Marc rocks.
What is this BULLSHIT that you can't do anything with gold. Mentally challenged folks at bloomberg. Let them eat theasuries...
he still rocks a corded 80's casio phone...
That Bloomberg duo are actually the best they have, someone said it before, that the questions were a set up for faber to make his point, Faber also says some unpredictable stuff, its real and good but it throws people off. Also its common knowledge he sits on some mining company boards, he is not trying to to fool anybody, he calls as he sees it, were lucky to have guys out their thinking straight.
'To see the role of the monetary system in this let us take a look at how this currently works: Basically, in the modern world there are places called ‘banks” that have computers in which many people have so-called “accounts”. In the accounts of these computers there are numbers, which are measures (in the US given as dollars) of how much “money” you own. A large proportion of humanity in fact does not have any such “account”, whereas some people may have 10.000 ($) associated with it. Others may have 10.000.000 or even 10.000.000.000 ($) associated with their names in these bank computers. Moreover, for a large number of people these numbers are negative because the banks have “lended” “money” to them. Thus there are huge differences in these numbers for different people despite the fact that people work approximately the same amount of time everywhere. Sometimes the numbers may be related to a service done by someone to the planet, but more often than not it is the other way around. Those that cause the most damage to our planet in fact often have the highest numbers in these bank computers. Regardless, the point to realize is that the numbers in these bank computers more than anything else defines a power structure, where those with high numbers dominate those with low or negative numbers. Money has no real existence, but the legal definitions of a society maintains a system of dominance based on these computer numbers.'
http://www.silverrevolucion.com/story.php?title=the-beginning-of-the-fou...
+1760 on mention of Faber.
How does one junk RT under this transitory regime?
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