Phony Funding
On the surface it appears that the Feds are creating a recovery with money borrowed from foreign lenders, it ain't necessarily so. Much of that money is actually printed by the Federal Reserve itself and given to the foreign entities who then lend it back to the U.S. Treasury. Why, because there have been funding auctions that failed to attract enough bids, when it happens it throws a frigid pall of fear over the financial markets . Everyone holds their breath and steps back. They can not let that happen again, one more time could be fatal. It is all a con, a phony recovery paid for by phony funding auctions. The foreigners don't want any more worthless paper from the U.S.A. that they know will never be paid back but what they do want is to get rid of all the garbage debt on their books from the likes of Fannie Mae and Freddie Mac, debt know as agency paper. So a deal is struck. The Fed prints the money and takes the bad agency paper onto their books and the foreigners write a cheque using some of the new money they get to buy U.S. bonds, the treasury then pays them interest on the money they just gave them.
In March, the Fed got the idea they would avoid taking on that bad debt by cutting out the middle man and just printing the money and buying the bonds themselves. Remember how the poop hit the fan. The foreigners backed away [no kickback, no dough] and bond markets convulsed. They won't try that again.
They will keep printing money and they will keep faking the auctions, there can be no more failures. There is no way out. It is stealth quantitative easing.
100 Year Debt Blow Off For 100 years it has been all about debt, debt finances growth and inflation finances debt. We are at a point now where a debt blow off has occurred. A blow off so large that it has torn the economic world order apart. China a brutal, oppressive regime living in quiet poverty now has all the money and is still rising toward world dominance. The United States has destroyed it's manufacturing base and squandered it's resources. It has abused it's world leader status and under minded it's hegemony advantage. In one generation it has become the largest debtor nation in history. Globalization has created very tough competitors, it is much easier to be a consumer. Easy money has caused an explosion in the world population. Forget shortages of food and energy, think too many people. In the U.S. alone it now requires 400 billion dollars per month just to keep this monster alive. Papering over this puppy will take big inflation.
The final bill for this recovery is estimated to be 20 trillion dollars and so far it ain't much of a recovery. Add that to the existing debt and the numbers are staggering. At the same time, the average worker can't even find a crummy $30,000 a year job. Something stinks! The truth is the whole economic system stinks! Here are some basic facts.
Demand was artificially induced by the huge flow of credit which was mistaken for an abundance of liquidity by most economists and strategists. Now there is a huge over supply of everything.
Everyone that wanted a house got a house. Everyone that wanted to renovate did so. China has over expanded and is now taking quantitative easing to a new level.
Countries like Greece, Spain, Portugal, Vietnam, Iceland, Dubai and former Iron curtain countries can't pay the interest on their debt and are collapsing. The E.U. is in peril.
About $1.5 trillion of Commercial real estate mortgages mature over the next few years, and many of them will not qualify for refinancing.
Housing is facing huge supply problems and all the "pay what you can" and "liar loans" are coming up for renewal.
Consumers are not coming back any time soon, they still have unsustainable debt levels. Jobs are not coming back either, not well paying jobs. I ask, who is indispensable? Most are not. Many will do our jobs better, for less money and there are many hungry job seekers. This knowledge alone kills spending.
More people work for the public sector or are on some form of assistance than work in the private sector.
The financial leaders are a bunch of liars and cheats trying to zoom the world and renege on their debts and obligations by inflating our future away and why not, it has worked for 100 years. Has the bill finally come due?
I won't go on but trust me I could. However it is not my intention to be a worry monger. My point is that nothing is as it appears. The economy we think we know and our place in it is illusionary. Markets and asset prices are clearly manipulated. Economically, it is all about jacking the price of over valued assets still higher. Take away the high asset prices and you take away the middle class. Equities must be supported or pension funds, the ultimate Ponzi scheme, will end. Higher prices or no pension for you, it is that simple. Home values are where many view their future security. Take away the high home prices and you take away the social order. They must be protected at all cost.
The recovery is simply a transfer of money from savers, through an inflationary devaluation of their cash holdings and taxpayers through increasing the national debt, to the asset holders. Nothing is manufactured or sold. No industries are created except the building of more houses. This at the same time as 14 % of all homes in the U.S. with mortgages are in arrears or default. The poor are getting poorer.
Over in Boomerville, land of the middle class, a place I visit often, I see four themes. The first is ignorance, the second is entitlement, number three is complacency and four, well, I won't say, I have to go back. They don't know and they don't want to know what is really happening.
They expect everything will workout in their favor and feel no pressing need to take any precautions. They may be right, they are loaded with assets.
In Your Face
If you invest using the fudged data or what you read coming from the top fundamental analysts and bloggers, you may find you don't fair too well. They are good and very convincing with a constant flow of new writings but most have missed this huge rally or been calling an end to it since June. To be fair, everything they say would be valid in a perfect world. However we are not in a perfect world and if you act on their opinions you may end up as cannon fodder for the professional traders. The pros don't care about bogus reports and economic data. They need someone on the other side of each trade, their source of profits is order flow, the more one directional the thinking the better. They don't care which way it is trending, they take the other side. They have very deep pockets, they will take everything you give them and then turn the market and shove it back in your face.
Cry Havoc and Unleash the Bankers from Hell
My clients often come to me beaten and bloody. They have been forced into the trading arena because they are being held upside down by their ankles and shaken by their govt and the banks. They search for higher returns in the shark banker infested waters. Everywhere they turn is another blood sucking, venal banker or a bank owned brokerage is gouging them on commissions, exchange rates or user fees. In desperation they fall into the hands of some predatory con artist selling a useless trading system based on indicators or moving averages they could get in a book from the library, for free. They buy into some crappy option trading scheme or a level 2 quote thing. Hey, maybe the FX seminar at the local hotel. They wonder if maybe the chubby, bald, stock picking guy or the girl with the stupid hat can help them. Truly babes in the woods, without even rudimentary trading skills and no understanding of risk or how to manage it. I help who I can but I know there are many standing at the abyss. Was it a coincidence the S&P 500 bottomed at 666?
The U.S. government has fully sanctioned and unleashed the Fat Boys to act on their behalf, the trouble is there is no one smart enough in government to control them. [See my article "Due process ".]
In this upside down world of lies and manipulation if you trade or invest, you or your advisor had better be able to follow the money, track the Fat Boys covert machinations and have a solid understanding of risk management. The fact is, you are either with them or a victim.
Copyright © 2010 Bob Clark
Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com his email is linesbot@gmail.com.
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