Given that ALL of the stock market gains since 2008 were based on Fed money printing… what do you think will happen when the Fed tries to taper QE?
Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability. Not surprisingly, recent attempts to replenish assets (read collateral) backing shadow money, most recently via attempted Basel III regulations, failed miserably as it became clear it would be impossible to procure the just $1-$2.5 trillion in collateral needed according to regulatory requirements. The reason why this is a big problem is that as the Matt Zames-headed Treasury Borrowing Advisory Committee (TBAC) showed today as part of the appendix to the quarterly refunding presentation, total demand for "High Qualty Collateral" (HQC) would and could be as high as $11.2 trillion under stressed market conditions.
MERS: The Center of the Mortgage Scam
Today any lingering doubts that the market is a complete and manipulated farce were put to rest following the epic embarassment that was the early release of FOMC minutes due to what Steve Liesman announced was a leak of the March minutes yesterday to a hundred or so staffers and various lobby organizations, which means the minutes promplty became public knowledge to anyone and everyone connected to Washington, such as all hedge funds, banks, and other financial firms. Everyone, except of course, the general public. Which is why we politely petition the Fed to add us and all of ours readers to the early distribution list for the Minutes and all other releases that are leaked in advance of distribution to the general public. Since we have all given up on any pretense of a "fair and efficient" market, it is only "fair" (at least until such time that Chairman Bernanke decides to finally start throwing €500 and ¥100,000,000,000,000 bills out of helicopters).
We urge readers to make liberal use of the Fed's contact page and request "fair" and equal treatment with those who in the eyes of the Fed are more equal than all others.
Fewer jobs, BTFD; Bond yields at 5-month lows, BTFD; Macro data collapsing, BTFD; earning season straight ahead, BTFD. US equities dumped in the pre-open on huge volume as the NFP data hit and disappointed with not even Steve Liesman able to find a silver lining, but we wriggled higher after the US open and briefly topped out at the European close - all amid extremely low volume. Then things went quiet, too quiet; until the dreaded witching 30 minutes. Volume disappeared to trickle and at 1530ET to the dot, the magical levitation fairy took us on her wings made of bull's scrotums and smashed stops to pull S&P futures (and thusly the rest of the market) up 10 points. Although we closed red - making it 13 days in a row of down-up now (an all-time record of prevarication) - all asunder declared victory for the bulls and declared that this 'market' shows that everyone just wants to buy those dips. Meanwhile, EURJPY exploded (JPY lost 5% against the USD in the last 36 hours); Treasury yields collapsed - not participating in the jerk higher in stocks; Silver and Oil recoupled (again) to close -4.2% on the week; Gold ended -1.2% at $1580 (notably off its lows); and while high-beta sectors recovered Utes and Healthcare won the week. The Dow, in all its might, closed above pre-Cyprus levels (just).
Another Beige Book comes and goes providing little real color as to anything useful about the real world. The excessive use of words synonymous with 'mediocre' appears to be the best we can do (on a $1 trillion deficit?) - but of course, the Dow is still near all-time highs...
- *FED SAYS ECONOMY GREW AT 'MODEST TO MODERATE PACE' IN FEBRUARY
- *FED SAYS 'MANUFACTURING MODESTLY IMPROVED IN MOST REGIONS'
- *FED SAYS SEVERAL DISTRICTS REPORTED 'RESTRAINED HIRING'
- *FED SAYS MOST DISTRICTS SAW MODEST PRESSURES ON PRICES
- *FED SAYS 'WAGE PRESSURES WERE MOSTLY LIMITED'
Of course, the spin will be, at least it's not bad... the S&P is 3 points off the highs, BTFD. Perhaps of most note, though: "Many District contacts commented on the expired payroll tax holiday and the Affordable Care Act as having restrained sales growth."
As I noted in an article published Thursday morning, the government bought three quarters of a percentage point worth of growth in the third quarter leading several hapless commentators to opine on national television that the U.S. economy was not only on solid footing but was in fact experiencing "above trend" growth. Of course if you're the mainstream financial media what is good for the Q3 goose is not necessarily good for the Q4 gander and so when fourth quarter GDP printed in contraction territory Wednesday, viewers were encouraged (much to the chagrin of a predictably irate Rick Santelli) to discount "volatile" government consumption expenditures and focus only on the components that made a positive contribution.
When people talk about "cash in the bank", or "money on the sidelines", the conventional wisdom reverts to an image of inert capital, used by banks to fund loans (as has been the case under fractional reserve banking since time immemorial) sitting in a bank vault or numbered account either physically or electronically, and collecting interest, well, collecting interest in the Old Normal (not the New ZIRPy one, where instead of discussing why it is not collecting interest the progressive intelligentsia would rather debate such trolling idiocies as trillion dollar coins, quadrillion euro Swiss cheeses, and quintillion yen tuna). There is one problem, however, with this conventional wisdom: it is dead wrong. Tracking deposit flow data is so critical, as it provides hints of major inflection points, such as when there is a massive build up of deposits via reserves (either real, from saving clients, or synthetic, via the reserve pathway) which can then be used as investments in the market. And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history.
Earlier today, Bill Frezza of the Competitive Enterprise Institute and CNBC's Steve Liesman got into a heated exchange over a recent Frezza article, based on some of the key points we made in a prior post "A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed" in which, as the title implies, we showed how it was that the Fed was indirectly intervening in the stock market by way of banks using excess deposits to chase risky returns and generally push the market higher. We urge readers to spend the few minutes of this clip to familiarize themselves with Frezza's point which is essentially what Zero Hedge suggested, and Liesman's objection that "this is something the banks don't do and can't do." Liesman's naive view, as is to be expected for anyone who does not understand money creation under a fractional reserve system, was simple: the Fed does not create reserves to boost bank profits, and thus shareholder returns, and certainly is not using the fungible cash, which at the end of the day is what reserves amount to once dispersed among the US banks, to gun risk assets higher.
Alas, Steve is very much wrong.
Bernanke: Drop it Janet. My mind is made up. Meeting over.
Fed mouthpieces Bullard and Lacker are out in force this morning talking the market back from the edge of yesterday's FOMC Minutes and reassuring us that the economy is going to be weak enough for a lot longer to justify the Fed's actions. However, right at the end of Jim Bullard's interview with CNBC's Steve Liesman, we got a glimpse of the reality behind the curtain as the St. Louis Fed president threw Bernanke under the purge-ry perjury bus... Following a discussion of fiscal policy uncertainty and the need to carefully spend what money we have, Liesman jokingly commented to Bullard that it is "Easy for you to say, you have a lot of dollars to spend; you get to print them!" To which the now foot-in-mouth Bullard replied, "Aaahh; indeed we do." This seems a little different from what Bernanke previously told Congress.
UPDATE: New York City officials order evacuation of upper floors of several buildings near site of partially collapsed crane.
While we are still hours away from "Peak Storm", the structural casualties are already adding up. FDNY reports a 2nd alarm alert at the soon-to-be tallest residential building in Manhattan - 157 West 57th Street (aka One57, where recently a record price was paid for a duplex apartment) entailing a dangling crane. The area is being evacuated - to somewhere we assume that does not have cranes (good luck finding that). The critical question for Steve Liesman remains - how much more is a 'broken crane' worth to GDP than a 'broken window'? Live stream embedded below...
Data Massaging Continues: Initial Claims Tumble To 339K Lowest Since 2008, Far Below Lowest ExpectationSubmitted by Tyler Durden on 10/11/2012 08:42 -0400
This is just getting stupid. After expectations of a rebound in initial claims from 367K last week (naturally revised higher to 369K), to 370K (with the lowest of all sellside expectations at 355K), the past week mysteriously, yet so very unsurprisingly in the aftermath of the fudged BLS unemployment number, saw claims tumble to a number that is so ridiculous not even CNBC's Steve Liesman bothered defending it, or 339K. Ironically, not even the Labor Department is defending it: it said that "one large state didn't report some quarterly figures." Great, but what was reported was a headline grabbing number that is just stunning for reelection purposes. This was the lowest number since 2008. The only point to have this print? For 2-3 bulletin talking points at the Vice Presidential debate tonight. Everything else is now noise. It is also sad that the US "economy" has devolved to such trivial data fudging on a week by week basis, which makes even the Chinese Department of Truth appear amateurish by comparison. Needless to say, Not Seasonally Adjusted initial claims jumped by 26K to 327K in the past week but who's counting. Finally, what is the reason for ongoing QEternity if the employment situation is now back to normal. Finally, in completely ignored news, because who needs global trade when you have toner cartridge, and generally ink, the US trade deficit in August rose by 4.1% to $44.2 billion, on expectations of a deterioration to $44.0 billion. Then again nobody talks about the US trade deficit during presidential debates so all good here.
Charlie Evans proved once and for all that he is the 'doviest' dove in the Fed's dove-cote as he espoused his own special sense of reality with CNBC's Steve Liesman this morning. His ability to speak out of both sides of his dual-mandate mouth while suppressing the reality of rising prices and expounding on the need for the Fed to be more accomodative (we assume they will stop at infinite infinities of easing), Evans made it very clear, when pushed on the topic of QE efficacy, that they will continue to print (unable to provide any quantitative assessment of the result) until morale improves. That's it; nothing less. Inflation - no worries; all the time the unemployment rate is where it is they are justified in debasing to the max. Must watch clip to understand why precious metals have surged this morning and stocks not so much as they will repeat the same actions again and again and expect a different outcome.
In a little under seven minutes, the world of CNBC provided something for everyone in this epic confuse-a-rama between Rick Santelli, Steve Liesman, and Brian Sullivan. The president's jab at 'trickle-down' economics (with an eye to Bernanke's recent asset-wealth-inflation efforts) was the premise for the discussion but it went to an 11 on the Spinal Tap amplifier of self-deception and circular logic. The question is initially well-posed and subsequently addressed by Santelli who describes the broken pipeline from the Fed to the bank's reserves that is not allowing trickle-down of Bernanke's largesse. Liesman argues that the lowering of rates helps borrowers (all the middle-class apparently) as they pay lower costs on their debt (seemingly ignoring the fact that Santelli just said the 'flow ain't happening' - and the fact that retail-to-wholesale mortgage spreads are at record highs). This is then followed by Sullivan with his insightful quip that the inflationary by-product of Bernanke is higher costs of food/energy which buffers the benefits of lower interest costs... and that is where Liesman goes into full-propaganda mode...