Tag Archives: money printing

Party Like It’s 1999: The Stock Market Is A Propaganda Tool

The degree and level of propaganda now flowing from the Establishment and the Establishment-controlled mainstream media is on par with that of the old Soviet Politburo or German Third Reich.   In fact, I’d confidently propose that this point is incontestable.

With modern technology and regulations which have made Fed operations and accountability tragically opaque, I have zero doubt that the Fed and the Government have managed to turn the stock market into another propaganda tool.  Studies have shown that, over the short term, the direction of the stock market and consumer sentiment measures are highly correlated.

Thus, pushing the stock market a lot higher is a mechanism that can be used to influence the public’s sentiment and willingness to spend.  This is critical after an election in which the political party controlling Capitol Hill changes and – more important – during the holiday shopping season.

Without question the U.S. economy is beginning to quickly crumble.  If you “peel away” the manipulative techniques applied to the economic reporting it reveals that every segment of the economy is now contracting.  Even the factory orders report for October released  yesterday – which showed a 2.7% gain over September – is still down 2.3% YTD vs the same YTD period in 2015.  Strip away the transportation component and it’s down 2.7%.

With interest rates on the long end up over 100 basis points in a very short period of time, the Fed’s balance sheet has taken a big hit. It currently owns over $4 trillion in Treasuries and mortgage securities. Assuming an average duration of 10 years on its holdings, the market value of the Fed’s balance sheet has dropped 8.4%, or approximately $320 billion. As of this past Thursday, the Fed’s balance sheet showed $46 billion in book equity. If the Fed were forced to mark-to-market its fixed income holdings, the Fed’s net worth would be significantly negative – close to $300 billion negative. Think about that: the only thing backing the value of the U.S. dollar right now is the U.S. military and a Central Bank with a massive negative net worth.  – excerpt from IRD’s latest Short Seller’s Journal

Market intervention in this manner is an attempt to convince the public that the economic system is healthy and will be even healthier in the future.  As such it’s another subtle propaganda tool – a perception management device.   If the Fed were step away from the market, the stock market would rapidly re-price to reflect the true underlying economic reality.  In short, stocks would crash and concomitantly gold and silver would soar.

The Fed injected billions into the system in late 1999 ahead of Greenspan’s Y2k scare. It led to the biggest stock market blow-off top of all-time.The current market is quite similar, only the economic and financial fundamentals underlying both the public and private sectors of the system are far worse than they were in 1999.

The ONLY thing that can explain the move in the stock market since around 2:00 a.m. EST after the election is massive Fed stimulus in some form – either direct cash injections done in a format that won’t show up on the Fed’s balance sheet or a massive spike up in the availability of short term credit lines made available to banks and extended to hedge funds. There is no other explanation.

Today for example, the stock market is spiking higher AND bond prices are higher/yields lower. This makes absolutely no sense and can only be explained by official intervention of some sort.

Gold and silver will “sniff” this out and at some point I expect to see gold begin to move a lot higher and the dollar sell-off precipitously. I also expect that the Chinese are going to send their response to Trump’s inimical overtures on Twitter by accelerating their sale of U.S. Treasuries.

lf the same GAAP accounting standards used in 1999 to measure corporate earnings – the standards having been relaxed more almost every year since 2000 to enable companies to report higher GAAP earnings – were applied to today’s earnings numbers, we would see that the current stock market is by far the most overvalued in history.

This will not end well.

Puerto Rico’s Collapse Foreshadows A Total U.S. Collapse

Congress, for some reason, has agreed to use U.S. Taxpayer money to bailout Puerto Rico. That’s mighty generous of Congress to use Citizens’ money for that, especially when most Congressmen have their money tax-sheltered in the Rothschild Trust Company in Reno.  But it begs the question:  Why is Puerto Rico even part of the United States?

An article in the Wall Street Journal reports that Puerto Rico’s pension fund is underfunded by $43 billion, which is on top of $70 billion in various forms of Government debt.  Puerto Rico is an “unincorporated territory of the U.S., which means that it probably harbors a lot of U.S. money hiding from the IRS.  That explains why Congress is using other people’s money to bailout their own money plus the money of those who fund Congressional seats.

Puerto Rico, for all intents and purposes, has financially collapsed.   Your tax dollars are keeping it solvent and paying out pension beneficiaries.  But the State of Illinois would love to have the size of PR’s problems.  The State pension fund in Illinois is underfunded by over $111 billion.  That’s based on a lot of assets like commercial real estate, junk bonds and private equity investments that are marked to fantasy.  Mark ’em to market and I bet the pension fund is underfunded by closer to $200 billion.

That’s just Illinois.  If we were to do a rigorous mark to market assessment of the State pension funds in California, Texas, New Jersey, New York and Florida, I’d bet my last roll of silver eagles that combined the pensions in those States – not including Illinois – are underfunded by  over $1 trillion.

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The graph above shows a 60-minute intra-day chart of the S&P 500 going back to late June. I’ve been featuring this chart in my Short Seller’s Journal every week.   The S&P 500 has basically flat-lined since July 7.  If you overlaid a bollinger-band width indicator, it would show a horizontal line since July 7.  The Fed has temporarily achieved the remarkable feat of removing volatility from the stock market.

The Fed has keyed the stock market to minimizing VaR.  “VaR” stands for “Value at Risk.”  It’s essentially a fancy-sounding term that measures how much an investment portfolio – or bank asset portfolio – might lose given certain volatility assumptions over time.  That’s it in a nutshell though I’m sure quant-geeks will get picky with that summary.

But the bottom line is that if market volatility shoots up for some reason, VaR will shoot up and that will incinerate every single big bank and pension fund  in this country.  Puerto Rico’s predicament will look like a feel-good Broadway musical by comparison.

A friend of mine did a comprehensive of study of public pension funds and concluded that a 10% or more drop in the S&P 500 over a sustained period of time would induce the collapse of all public pension funds.  I think he assumed the best case in terms of how pensions currently mark their assets.  If you notice, the 10%-plus  sell-offs last August and January were followed by sharp “V” bounces – both time.  That was undoubtedly the work of the Fed and my friend’s quantitative work explains why.

I would be surprised if there’s ever been a 7-week period of time when the volatility in the stock market has been as low as it has been since July 7.  Especially considering the high volume of economic, political and geopolitical events that are occurring simultaneously, each of which individually has caused sharp market sell-offs historically.

Another friend/colleague of mine told  me today that one of clients stated that he thought the Fed could hold up the market forever.  My response to that is, if that were the case the whole world would be speaking German right now.

The U.S. collapse will happen either now or later.  For the latter outcome, at some point the Fed will need to print 10’s of trillions of dollars to prevent that horizontal line on the graph above from turning into a downward-pointing near-vertical line.  Of course, please review the history of Germany circa 1923 to see how the money printing alternative worked out…

Hate To Say “I Told You So, But I Told You So”

UPDATE (Feb 21, 2015):  A lot of pundits with poor-analysis-egg-on-their-face are now predicting that the deal struck yesterday to bail out Greece will fall apart.  Well ya, I guess eventually Greece will blow up but it will blow up with the entire EU.  Does this statement from Greek  Tsipras sound make it sound like the deal will blow up?

Greek Prime Minister Alexis Tsipras declared victory on Saturday after agreeing a last-minute conditional financial rescue deal with Europe, despite making big concessions to avert financial collapse within days (LINK)

The real beneficiaries of this deal are the people running the big banks – U.S. and European – because a Grexit would have blown up them up and the upper management of these banks could no longer milk QE by paying themselves huge salaries/bonuses.   Hey Germany:  You just made sure that the CEO’s of Goldman, JP Morgan, Deutsche Bank, Citibank, Morgan Stanley, et al will get to reward themselves handsomely with YOUR tax money.  Now ya know how we feel…

Three weeks ago I wrote that the ECB and the Greeks would reach a “kick the can down the road” agreement – that everything in between would be staged grandstanding for the benefit of Germany’s restless anti-euro population (you know, the ones that want to hold the Bundesbank accountable for the gold that the Bundesbank has claims to have). Well, guess what? They kicked the can down the road: Bloomberg, Zerohedge.

It was simple to figure this:  follow the money.   The real money wasn’t in the exposure to the Greek sovereign debt that everyone was blathering about.  The real money is in the OTC derivatives connected to the Greek sovereign debt, the former to which big Too Big To Fail Banks have a huge exposure.   I can guarantee you that the U.S. Treasury and the Fed had played a huge role in engineering this latest maneuver to put off the day of reckoning.

“You can ignore reality, but you can’t ignore the consequences of ignoring reality.”  Ayn Rand