This Is Where "The Money" Really Is - Be Careful What You Wish For

Tyler Durden's picture

We have long shown that "investors" whatever that term means in the New Normal - those gullible enough to put their money in Bennie Madoff, pardon Bennie Bernanke Asset Management? - have been not only reluctant to put their money into stocks, but despite week after week of artificial, low volume highs, driven entirely by Primary Dealers (and now European banks post the $1.3 trillion in LTROs, not to mention even foreign Central Banks recently buying high beta stocks) spiking the market ever higher courtesy of record reserves, but in fact continue to pull their cash out of the stock market with every thrust higher. Why, just last week another $1.4 billion in cash was pulled from domestic equity funds, nominal Dow 13,000 be damned. The truth is that the banks are desperate to start offloading their risk exposure to retail investors, and instead of selling, are furiously trying to send the market ever higher just to get that ever elusive "investor" back: just look at how much the market rose by last week, CNBC will say: do you really want to be out of this huge rally? Alas, the damage has been done: between the Great Financial Crisis, the Flash Crash, a massively corrupt regulator, rehypothecating assets that tend to vaporize with no consequences, and a central bank which effectively has admitted to running a Russell 2000 targeting ponzi scheme, the investor is gone. But what if? What if the retail herd does, despite everything, come back into stocks? After all the money is in bonds, or so the conventional wisdom states. What harm could happen if the 10 Year yield goes back from 2% to 3%, if the offset is another 100 S&P points. After all it is good for the velocity of money and all that - so says classical economic theory. Well, this may be one of those "be careful what you wish for." Because while investors have indeed park hundreds of billions out of stocks and into bonds, the real story is elsewhere. And the real story is the real elephant nobody wants to talk about. Presenting: America's combined cash hoard, which between total demand deposits, checkable deposits, savings deposits, and time deposits (source H.6), is at an all time high of $8.1 trillion.

Indicatively, this consolidated number was a modest $5.9 trillion the week when Lehman failed. In other words, in the period in which the Fed dumped $1.6 trillion in cash on Primary Dealers' balance sheets, and gave them a carte blanche to buy NFLX, AAPL, and Crude of course, which they did in keeping with the Fed's Global Put mandate, i.e., no bank will ever fail again, American consumers added $500 billion more than even the Fed parked with the banks, or $2.2 trillion.

And therein lies the rub. As a reference, America currently has about $1 trillion of currency in circulation. If, and this is a big if, the gullible US consumer-cum-New Normal investor, does fall for the oldest herding trick in the book, and not only converts their bond holdings but their cash holdings into stocks, which in turn goes right into money velocity, into currency, and thus, into inflation, America may promptly find itself with the most unprecedented inflationary outcome it has ever experienced. Because while the Fed may have control over Excess Reserves, or so it believes, via the interest charged on overnight reserves, it will have absolutely no control over the herd mentality and the avalanche of money, should it proceed to rotate not so much out of bonds into stocks, but far more importantly, out of electronic cash (which for all intents and purposes is the US M2 these days), into the stock market.

Crude at $200 will then be the least of everyone's concerns.

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azzhatter's picture

Does this include the $127,000 I have buried in my back yard ?

LawsofPhysics's picture

Funny you say that.  I know two "old coots" storing paper and PMs.  Even physical cash has value in an apocalypse, hard to break up those bars.  At least that is what JPM told MF global clients. 

Divided States of America's picture

Fuckin Fed and banks working together to raise the quality of capital on their books. Stocks are considered level 1 securities since they are usually liquid and trade on an exchange. So if they plow into stocks and stocks go up 100% like it has from the lows of 2008, the banks capital is effective doubled just for buying and holding on to this overvalued company certs, even as volume lags because the Fed has been the doing the majority of the buying (or propping). Except that prices have gone up a ton so their powder cant buy as much as before. If thats the case, then they going to ramp up stocks like no tomorrow. However, the insiders are thinking otherwise, they still dumping shares like no tomorrow.

Tyler, you should give us an update on insider transations. 

Ahmeexnal's picture

They will make it easy for 300lb joe sixpack to dump his bank account into stocks.
New firmware on ATMs will now include stock market operations.

Harlequin001's picture

Problem is, the more money they print, and the more they use the MSM to keep people in other assets, it takes fewer  and fewer investors to have the same impact on prices needed to cause a panic. It just takes longer, and the effect is that much better...

Pinto Currency's picture

 

The article should say: "America may promptly find itself with the most unprecedented consumer goods price inflationary outcome it has ever experienced."

The Federal Reserve and other central banks have already executed the most unprecedented monetary inflation in history.  We simply await the inevitable manifestation in consumer goods prices of the prior central bank money inflation.

It's all over but the crying. 

Iran will be attacked as our central banks aren't good at 'splainin.

TruthInSunshine's picture

Wall Street Shylocks Want that 8.1 Trillion.

Wall Street Shylocks NEED that 8.1 Trillion.

 

Wait for some grand bargain between ObaMao & Wall Street guaranteeing his re-election if only he gives them more avenues to crack into that big safe, bitchez (as if the Republican Muppet would be any different).

They're Coming For It, Bitchez. They Want It All. Like Parasites On Hosts.
EscapeKey's picture

$8tn. $8tn.

Wasn't there some pseudo economist who writes for a second rate tabloid who mentioned exactly this figure some time ago?

http://www.creditwritedowns.com/2010/10/krugman-we-need-8-10-trillion-worth-of-quantitative-easing.html

Oh yeah.

TruthInSunshine's picture

There are Shylocks everywhere.

shylock - definition of shylock

shy·lock  

n.
A ruthless moneylender; a loan shark. intr.v. shy·locked, shy·lock·ing, shy·locks
To lend money at exorbitant interest rates.
AldousHuxley's picture

ZIRP is not shylocking....actually it is the opposite....bailing out irresponsible lenders cheapening the value of money and earned money for everyone.

TruthInSunshine's picture

Make no mistake:  The fiat currency that is produced from thin air at no cost to the conjurers and which enjoys legal monopoly status either now (it's happening right now, in particular and large ways - look to the spread; but for sake of your point, let's assume it's not) or in the future, will get relent at much higher rates. It's inevitable. And the shylocks will be the ones who profit. Amschel himself would be amazed at the world today if he were alive.

walküre's picture

TIS, I'm asking you at what point will everyone awake from this stupor and realize that it's all "funny money"?

If one group can simply never get poorer because they print themselves wealthy, create their paycheques from thin air.. how long does that go unnoticed?

QE3 is rumored to have a $3.6 trillion price tag. LOL.

AldousHuxley's picture

money is debt

debt is claim on you creating wealth in the future

 

more debt = you will work harder for less (more fake stuff, food, lives....less real stuff, food, lives)

 

 

your kids will have to get phD in STEM just to buy enough fake processed food to sustain and have time to facebook while seeing you once a year.

 

inflation alone doesn't account for losses of things that are truely important such as time with family, mental health, freedom, morality, etc.

 

 

 

Manthong's picture

Hey kids, here's a hint about what to watch out for:

 

" “I do feel a sense of urgency about the structural weaknesses that do exist in money-market funds,” Schapiro said. “There is a structural weakness that makes them prone to runs, and I think we need further debate and discussion about some concrete ideas there.”

Schapiro declined to discuss specifics, but SEC spokesman John Nester confirmed that rule changes are being prepared.

“At the chairman’s direction, the staff is currently drafting proposals to address the susceptibility of money-market funds to runs,” he said in a written statement. "

http://www.bostonherald.com/business/general/view.bg?articleid=1061116801&srvc=business&position=recent

How do YOU spell "capital controls"?

The Watchman's picture

A S S C L O W N S

 

everywhere I look I see....

 

A S S C L O W N S

 

Bankers - Governments - Corporations

 

A S S C L O W N S

Spirit Of Truth's picture

Let's face it, folks. Ben has won.  REALITY no longer matters.

Kali's picture

You can ignore reality but you cannot ignore the consequences of ignoring reality.

Oh regional Indian's picture

But Reality is an illusion. Look at the top, Obama, a 'Complete Construct".

Then, just work down.... there is no "Money".

"Real" Money = Cannot Fold it, only Stack it. ;-)

By the way, not sure how many people saw this, Sun/Gold's weird "Triangle".... unprecedented, ominous.

Big big dates coming up, next few days, so packed.... 

ori

/awe-in-spiring-surya-sun-sol/

Harlequin001's picture

But that's the point, the world doesn't need this money. It is surplus to requirement, a sword of Damocles hanging over the heads of us all.

When this comes out, major inflation. Deflation is a fools concept.

Element's picture

Triangle? ... try a slice of coon with a bite out of it.
 
 
BTW: moon's made out of cheese ... what's it all mean? ... giant cosmic mice? ... if there are mice there may be cats ... can you imagine the smell if an interstellar Tom cat pissed on Earth? ... or laid a new and very pungent alpine continental swirl where Hawaii is? ... what the fuck are we going to do about that shit?!! ... annex the fucker? ... fight over who's dump it is?

Oh regional Indian's picture

Element, may I suggest David Icke? 

The moon is actually a complete anomaly, but I'm sure you knew that already! 

By the way, every famous astronomer in the 20 century said some variation of "The best way to explain the moon is to imagine it does not exist".

So there! ;-)

ori

Element's picture

Yeah, the fact remains the geochemistry of moon's basaltic crust, in its atomic components and their respective percentages, is basically identical to Earth's oceanic crust.  With one small detail missing, the moon's mineralogy has almost zero water or hydrous minerals, but water is very common in Earth's crustal mineralogy and all magmas (5% water is not unusual in magma).

 

Stuff like that tells me we ain't privvy to all the details of how planets and moons come to be.

A Nanny Moose's picture

We can evade reality, but we cannot evade the consequences of evading reality. - Ayn Rand.

Henry Chinaski's picture

If you wanted to confiscate wealth by devaluing a currency, where would you want people to be most hevily "invested?"

Jendrzejczyk's picture

Where it doesn't even leave vapor trails when it goes POOF!

Jake88's picture

It is the downfall of the US.  The ass clowns now run everything.

TruthInSunshine's picture

AldousHuxley said that "money is debt."

Damn straight.

It's such a simple concept, yet so few realize it is the core nucleus of all that ails our economies. I am not arguing that any system would produce utopia (and what is utopia, and to whom, anyways?).  I am arguing that the fractional reserve lending system is not only imperfect, but imperfect by design, as a means to ensure a conduit for a tiny % of individuals who literally control the amount of fiat currency in supply to steal (no exaggeration there) the productiveness and tangible things of inherent wealth produced and owned by those not having such control.

But this system of fractional reserve lending has an inherent poison pill baked into it. It can only last until those who do not have the ability to control the fiat money supply no longer can provide productive labor or tangible things of inherent value to those who do have control over the fiat money supply.

Money As Debt
airedalesrule's picture

There are massive problems with money market funds. Read a prospectus and look at what they own.

Consider that the average maturity is inside of ~30 days with skew to the short end. They are the mechanic in the cash markets that allow instaneous transmission of a liquidty crisis. A failure to fund one day essentially doubles in amount tomorrow and each day subsequently. It can go viral, exponentially, as it did before. The top 10 investors typically provide ~ 60-80% of total volume, so you lose one, and you're done. Oh, did I mention that banks (!?) provide partial putatively committed back up facilities?

Money funds today operate with no capital whatsoever. They are cash repositories and warehouse massive systemic risk:  broadly put, short term, rolling AA- risks ... sovereign, corporate & financial. Go price $trillions of that quality and quantity of risk in the market and see what it costs.

Yet they operate with no capital whatsoever. None.

centerline's picture

Read Hypertiger's blog.  I think he misses the mark in some ways, but closer to the truth than most in the grand scheme of things.

disabledvet's picture

yes. i agree with this. however it still doesn't solve the problem of "earning a dishonest buck" nor more importantly "the check kiting scheme that is Washington DC." THUS: "cash hoard earning nothing." what never get's asked here is "how does the average investor short the market" and of course even if he were to plow right in "believing in not believing" he couldn't. HOUSE'S RULES PEOPLE! Move along...

Jake88's picture

it is stealing from the fiscally responsible to keep the shylocks in business.

Dermasolarapaterraphatrima's picture

Time for the Gub'mint to "privatize" the SS system, forcing those monies to the stock market to generate more commissions and bonuses for Wall Street.

AldousHuxley's picture

McDonalds, Supermarket chains, Walmart, Churches, redstates, Florida won't let that happen as they depend on SS system redistributing money from earners to  non-earners.

 

 

ClassicalLib17's picture

 All I want is my 160.000 dollar contribution, to date.  

andrewp111's picture

Yeah, but that can authorize the SS Trustees to put the cash into stocks instead of treasury bonds. Then with a permanent investment, the Gub'mint will have a semi-legit excuse for the Fed to buy stocks directly.  You can't let market crashes happen if the next SS check depends on prices only going up, right??

WhiteNight123129's picture

BREAKING NEWS: Bo Xilai has been sacked. He was teh most populist guy in politburo, not an engineer as opposed to the other guys of the politburo, your perfect popular guy for western democracies that is ready to do anything to succeed. He tried to revive Mao´s style song, he was "charismatic" (read psychopath ready to ruin othe people to achieve his ends). The other politburo figures are usually low profile, not charismatic guys but well balanced personalities and bright people (engineers dominate the politburo). Well done China!

Marco's picture

Their congress is of course still filling up with billionaires (read also psychopaths).

disabledvet's picture

How ironic! "The People's Party" has run full circle! "A more effective kleptocracy." How about "Our Money...your problem"? Truly...the "to the barricades" sayings are infinite here. Sure beats those stupid posters they have on the office walls however.

Amagnonx's picture

MF global vaporized $1.6 billion, the defense dept 'lost' 1 trillion - what makes you think they wpn't just reach into your bank accounts and vaporize that as well.  Banked money is sitting within arms reach of the biggest thieves the world has ever seen - they no longer need any justification, nor rationaliztion - if people l;eave it there long enough, it will get stolen.

hamurobby's picture

They dont have to steal it outright, they will just devalue it to worthless. They are going to create enough new money and inflation to force money out of hiding and into circulation. When that happens it will be too late for those who thought themselves prudent savers and their wealth will be destroyed overnight. For the system to "work" there must be money velocity. Its hard to tax stagnant money. The system is collapsing with falling tax revenue and rising government cost. Ben will bow to the pressure and end up over creating capital which will way overshoot calculated targets of money velocity and a huge inflationary outcome will be the result. Do we think Ben really has a clue? well if he really was in "control", he would have raised interest rates appreciably back in 2002 or 2003 to stop the real estate market explosion! He only missed the sweet spot by three or four years! So this may take a few years to acomplish, but those who are afraid to move their money into hard assets early on, will be the ones to suffer the most. I cant and dont blame savers for wanting to be careful and stubborn, but they are the deer in the headlights throughout the history of debauched fiat currency.

Jake88's picture

You are right.  Unless or until these thieves are stopped with force, jailed or beheaded they will become even bolder intheir theft.

gaoptimize's picture

"On a long enough timeline the survival rate for everyone drops to zero"

"Oh well, in the long run we're all dead."

Don't be so sure...  http://www.wfs.org/content/when-death-becomes-optional

francis_sawyer's picture

 The truth is that the banks are desperate to start offloading their risk exposure to retail investors, and instead of selling, are furiously trying to send the market ever higher just to get that ever elusive "investor" back:

Muppets bitchez!

tickhound's picture

Yup, and absolutely nothing new in that statement other than the word "desperate"

Pinto Currency's picture

 

I would way rather hold equities than any bond for the next 10 years.

In a currency crisis, bonds denominatted in currency can go to zero while equities represent a portion of real productive asset.

The street is telling us to buy Proctor & Gamble

http://www.nydailynews.com/news/crime/thefts-tide-laundry-detergent-rise-cost-retailers-3-53-billion-2010-article-1.1039203

 

akak's picture

And I would rather hold a rotting squid than a rabid wolverine --- but why hold either one?

EscapeKey's picture

Absolutely right. Look at a 6-momth DJIA graph. You can literally use a ruler and draw a straight line through its ascent.

"Free markets" apparently mean entirely predictable stock graphs.