Artificial. Comment re. the recent Equities Market Rally Mohammed El-Arian CEO & Co-CIO PIMCO Indeed, the Equities and Bond Markets have been riding The Big Kahuna of Fed, ECB, Bank of England (and now the Bank of Japans) Q.E. et al. for several Years Now. But for how much longer can Investors expect to ride these Market Boosting Central Bank Injections and other Interventions before Disaster strikes and the use of QE reveals itself to be clearly Counter Productive. Increasingly, these Interventions are seen to be Disasters: The Fed is a Serial Bubble Machine David Stockman, Bloomberg, 4/2/2013. So what are the Ongoing Consequences will allow Investors to Profit or Lose? And what is the likely timing of these consequences? To develop the answers it is important to review Key Points in David Stockmans excellent Book The Great Deformation
The Corruption of Capitalism in America Then, when the Feds fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the threatof a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history. David Stockman, The Great Deformation By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct. And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued -- in full -- at all costs. Of course, history shows that our markets and economy would have been better off had the system been allowed to correct. Most of the "too big to fail" institutions would have survived or been broken into smaller, more resilient, entities.
As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values which for most of these partners is tens of millions, hundreds of millions when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets. David Stockman: Weve Been Lied to, Robbed, and Misled Adam Taggart, beforeitsnews.com, 03/30/2013 Stockman explains the Negative Consequences of saving the Ostensibly Too-Big-to-Fail Banks. The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America. When the Fed panicked, it basically destroyed the free-market interest rate you cannot have capitalism, you cannot have healthy financial markets without an interest rate, which is the price of money, the price of capital that can freely measure and reflect risk and true economic prospects. Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformations as I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they've then booked the profits, they've rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America. Now they go down and pound the table and whine and pout like JP Morgan and the rest of them, you have to let us do stock buy backs, you have to let us pay out dividends so we can ramp our stock and collect our stock option winnings. It is outrageous that the authorities, after the so-called near death experience" of 2008 and this massive fiscal safety net and monetary safety net was put out there, is allowing them to pay dividends and to go into the market and buy back their stock. They should be under house arrest in a sense that every dime they are making from this artificial yield group being delivered by the Fed out of the hides of savers should be put on their balance sheet to build up retained earnings, to build up a cushion
. The Deformations are not recent and have been building for some 25 years which is one reason they are so threatening.
Only in 1987, when Greenspan took over and began the era of bubble finance slowly at first then rapidly
The idea that we were on the verge of a Great Depression 2.0 is utterly wrong,
That is a defining moment in our time, because you can't believe anything that is said anymore.
I go through some of these AIG was not a contagious financial disease that was going to take the world economy down. It was a gambling joint at the holding company that could have easily been bankrupted, and the banks that bought the so-called credit-default swap insurance from AIG could have taken a couple of billion dollar hits each they were all big global banks and that would have been the end of the story. Some traders and bank executives would have lost their bonus, but the point I make in the book is that everyday Americans and Main Street would not have lost their jobs or their income or their insurance. David Stockman, The Great Deformation Indeed, Q.E. et al has hurt savers/Retirees and the Unemployed and underemployed and almost all of Main Street. In other words, it has not helped the Real Economy. But is has richly benefitted the Mega-Banks (several of whom are shareholders of the private for-profit Fed) and Big Insider Institutional Investors who have been riding the Big Kahuna Wave of Central Banks-provided Q.E. et al. But Q.E. to Infinity must be revealed to be a Counter Productive Failure when it becomes broadly Obvious that that intensifying Hot Money Deluge is in fact generating Price Hyperinflation. We are already getting close, the U.S. for example at 9.62% Real CPI is already Threshold Hyperinflationary as the Real Numbers (as opposed to the Bogus Official Ones) reveal (Note 1) Shadowstats.com. This Broader Awareness will not come all at once but rather will be Sector-Specific. It will come Sector by Sector, as it already has for Food and Energy. What may be a profitable and/or Protective Investment this Week, or Month or Quarter may well not be next Week or Month or Quarter. If one honestly Reviews the performance of all the Major Sectors for the last decade and a half, one is compelled to conclude as we have that: Buy and Hold Rarely Works anymore. And Bill Gross, Chairman, Founder and Co-CIO of PIMCO, recently made much the same point: (the Era of)
Epochal returns due to Credit Expansion is
Now Changing
(it is) Not Going to be like it has been
Bloomberg, 4/4/13. One Major Reason Buy and Hold Rarely Works any more is because of the Great Deformation -- Capitalism Destructive Deformation we add of Major Central Banks Policies. Stockman concludes by explaining how we arrived at this Socialist-Fascistic (using Fascism in the Narrow sense of the Merger of Government and Big Business) Condition. That is a system that is not stable, not functional, and not rational, and it is only a question of when this one rolls over. When it does, the selling panic will be every bit as bad or worse than anything we have had before. Because this time, not only is it stocks and high yield junk bonds and so forth even commercial real estate has bounded back substantially but we have this massive bond-market bubble underlying the whole thing. When the bond market rolls over, it will bring everything down with it. Therefore, Bernanke has been a great enabler and he has contributed beyond a measure to the paralysis that we have in the system today. Then they continue to build the debt and thereby increase the exposure. One way or another, sooner or later, interest rates are going to normalize. In fact, there will probably be a massive panic in the other direction at some point. Then we are going to be buried in $20 trillion of debt or more and it is going to $30
Economic growth is being ground to a halt. In fact, it already has, even measured in GDP, which is overstated because inflation is underreported.
When you borrow money and spend it, it helps the economy in the short run and kills you in the long run. We had this massive expansion of the Feds balance sheet. In the year 2000, when the S&P was where it is today, the balance sheet of the Fed was $500 billion, today it is $2.3 trillion.
The central bank has been appropriated lock, stock, and barrel by the players in the financial system. David Stockman, The Great Deformation In conclusion, one may ask, in light of all the foregoing why do the Equities Markets continue to move Bullishly Upward? The likely answer is that Major Central Banks and their Governments are Intervening in most if not all the Major Market Sectors and are not merely involved in boosting the Bond and Equities Markets and Suppressing the Prices of Gold and Silver. Legendary Investor, Jim Sinclair, agrees: The Plunge Protection Team (PPT) is not a speculation. There is a group of advisors to the White House which deals with markets. They also gather when markets are in extreme conditions. So to be clear, there is an organization which is designed to intervene in the markets. The problem now is they are manipulating every market on the planet. So you had this group which was created to stabilize during extreme conditions that has now decided their job is to run all of the markets of the world
Sinclair This Will Create The Mother Of All Financial Crises Jim Sinclair,JSMineset, 04/05/2013 As well, see Chris Powells excellent There Are No Free Markets Anymore in the archives at gata.org. In sum, this Artificial-ly created Market Music can be expected to Stop when the Hyperinflation Beast dramatically rears its ugly head in several Key Sectors, and the $US starts to dramatically Tank as it loses its Status as the Worlds Reserve Currency. Best regards, April 5, 2013 Note 1: *Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider Bogus Official Numbers vs.Real Numbers (per Shadowstats.com) Annual U.S. Consumer Price Inflation reported March 15, 2013
1.59% / 9.62%
U.S. Unemployment reported March 8, 2013
7.7% / 23.0%
U.S. GDP Annual Growth/Decline reported February 28, 2013
1.61% / -2.20%
U.S. M3 reportedMarch 21, 2013 (Month of December, Y.O.Y.)
No Official Report / 4.39% Note 2: All good Forecasts reflect probabilities not promises, guarantees, or certainties. We do not issue Forecasts unless our analyses reflect at least more-likely-than-not probabilities. But occasionally our Forecasts indicate, IMO, a higher, i.e. a much-more-likely-than-not probability for certain Key Sectors we cover. And this is one of those weeks in which Key Fundamental, Technical, Interventional, and Political reflect not certainty (and certainly not a guarantee) but rather, a much-more-likely-than-not probability, for one Key Sector we cover. To consider these Forecasts, see our recent Alert 17.97% Yield Buy Reco & Remarkable Forecasts: Equities, Gold, Silver, U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates, & Crude Oil, posted in Alerts Cache at www.deepcaster.com. And to consider our latest Blue Chip Buy Recommendation recently yielding 17.97%, and selling as we write for under $5/share, read that same Alert. Note 3: There are Magnificent Opportunities in the Ongoing Crises of Debt Saturation, Rising Unemployment, Negative Real GDP growth, over 9.0% Real U.S. Inflation (per Shadowstats.com) and prospective Sovereign and other Defaults. To consider our High-Yield Stocks Portfolio recommendations with Recent Yields of 17.97%, 10.6%, 18.5%, 10.7%, 26%,8%, 15.6%,8.6%, 10%, 6.7%, 14.9%, 8.8%, 10.4% and 15.4%when added to the portfolio; go to www.deepcaster.com and click on High Yield Portfolio.
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