Tag Archives: QE4

The Housing Bubble: They Keep Pushing The System Until It Breaks

The mortgage regulators are stretching the removal of mortgage qualifications to the limit in an effort to keep the housing party going. The Consumer Financial Protection Bureau (CPFB) is recommending the removal of the DTI as a factor in qualified mortgage underwriting. Ironically, tighter mortgage finance regulations were the purpose for the formation of  the CPFB in the first place. Wash, rinse, repeat. I have no doubt the mortgage and housing market is headed for another catastrophe.

Note that Blackstone, one of the first companies to dive head first into the buy-to-rent market, recently dumped the rest of its shares in Invitation Homes – one of the large single family rental operators which Blackstone took public in 2017.

Phil Kennedy (Kennedy Financial) hosted Aaron Layman – one of the rare realtors willing to discuss the truth (Aaron Layman Properties), Jimmy Morrison – who produced “The Bubble,” an impressive film housing bubble/collapse – and me to discuss why the housing market will implode again – we also include a brief discussion of gold and silver and why the precious metals sector is going to a lot higher:

Stocks Bubble Up From More Money Printing

The stock market spiked up last week as Trump started in with his trade war optimism tweets, which excited the algos and momentum chasers. As Monday rolled around, however,  it was determined that a “Phase 1” trade agreement amounted to nothing more than a commitment from China to buy some farm products. On Tuesday China made the purchases contingent on Trump removing tariffs. So there is no “Phase 1” trade deal.

But the hedge fund computers don’t care.  Now the market is bubbling higher on the reimplementation of Federal Reserve money printing. Call it whatever your want – QE, balance sheet growth, term repos, whatever. But the bottom line is that Fed is printing money and injecting it into the banking system, which thereby acts as a transmission mechanism channeling some portion of this liquidity into the stock market.

The semiconductor sector is traveling higher at the fastest rate as hedge fund computers and daytraders are chasing the highest beta stocks up the most. The SOXX index is pressing its all-time today.   This is in complete disregard to underlying fundamentals in the sector which are melting down precipitously.

For the 1st ten days of October, exports from South Korea fell 8.5% YoY with chip exports down a staggering 27.2%. Remember back in January when the CEO of Lam Research forecast an upturn in 2H of 2019? Does that look like an industry upturn? Two of the world’s five largest chip manufacturers are based in S Korea:  Samsung is the world’s largest and Hynix is ranked fourth.

Today the Fed’s daily money printing repo program surged to $87.7 billion, which is the highest since “QE Renewed”  began in mid-September.  Recall back then the popular Orwellian narrative explained that the “temporary” funding was necessary  to address quarter-end cash needs by corporations and banks.  Well, certainly the banks need the money…

But on Friday the Fed announced that it was going to extend the overnight and term repo operations at least until January. In addition, the Fed added a  $60 billion per month T-bill purchasing program. The Fed explained that it was implementing the  operation to supplement the liability side of its balance sheet.  Besides currency and coin issued by the Fed, deposits from “depository institutions” –  aka demand deposits from banks – represent the largest liability on the Fed’s balance sheet.

This means that this liability account needs more funding because either bank customers are holding less cash at banks OR banks need to increase reserves to maintain regulatory reserve ratios. The latter issue would imply that bank assets – aka loans – are deteriorating more quickly than the banks can raise the funds needed to meet reserve requirements. Given the recent data on MZM, it would appear that customer cash deposits at banks have increased recently. This implies that banks are experiencing stress in the performance of the loans and derivatives on their balance sheet, thereby requiring more reserve capital.

Money printing apologists want to point at DB or JPM as the target of the Fed’s money printing.  And I’m certain they are among the largest contributors to the problem.   But GS, MS, BAC, HSBC, C should be included in there as well.  They’re all connected via derivatives and I’m guessing subprime asset exposure at all the big banks is blowing up,  causing cash flow shortfalls and counterparty derivatives defaults on credit default and interest rate swaps.  Just look at the dent  WeWork is putting into the exposure to the failed unicorn at JPM and GS.  Then there’s the melt-down going in energy/shale sector debt…

Eventually the Fed will have to announce that it is permanently implementing temporary liquidity relief programs – or “organic” balance sheet growth operations.  Jerome Powell will take painstaking measures to assure the market this is not Quantitative Easing.   And he’ll be right. That’s because it is outright money printing.

I expect the stock markets to get a temporary “meth” fix that pushes the SPX back up to the 3,000 area of resistance.  I also expect that it will fail there again, triggering a sharp sell-off into the end of the year, similar to last year. The risk the Fed is running here by using more money printing to juice the stock market is that eventually – like all heroin or meth addicts – stocks will become immune to increasing doses of the happy drug.   At what point will the Fed be forced administer a dosage level that kills the market?

Bernanke’s Sovereign Deception: Bernanke Lied And Should Be In Jail Too

I love how these ex-Fed Chairmen admit the truth several years after the fact.  Recall that Greenspan gave a famous speech about the not being able to see financial bubbles until after they occur just before the internet/tech stock bubble popped.

And Bernanke stated in the 2005-2006 timeframe that there was not a housing bubble and that the economy was fine.  Of course, that was just before the housing market crashed hard and the economy dropped into the worst economic contraction since the Great Depression.

Now all of a sudden Benanke seems to have found “religion” about the criminality of bankers.  I wonder if this is part of his Yom Kippur “soul cleansing.”  In an interview this past weekend Bernanke stated that financial executives should have been investigated and prosecuted for perpetrating the great financial collapse:  More Wall Streeters Should Be In Jail.

The obvious injustice here is that Bernanke was in a position to enforce the laws and go after the Wall Street crooks in cooperation with the Justice Department.  But we know that the Justice Department is controlled by Goldman Sachs and the law firm, Covington Burling.  Goldman was one of Attorney General, Eric Holder’s biggest clients and Covington Burling is Holder’s employer.

Even more stunning, Bernanke stated that:

I certainly was not eager to bail out Wall Street and I had no reason to want to bailout Wall Street itself,” he told USA Today. “But we did it because we knew that if the financial system collapsed, the economy would immediately follow.”

This is an outright blatant lie.  And my good friend and colleague, John Titus of “Best Evidence,”  has compiled direct proof that Bernanke spear-headed the Fed’s bail-out of Wall Street AND he lied about the dollar amount involved in front of Congress.  Ben, the evidence is in the Fed transcripts from the 2009 FOMC meetings:  Bernanke’s Sovereign Deception

How come when Bernanke was in a position to enforce the law he was silent?  It’s because he was part of the crime syndicate.

color-bernanke-webIt’s amazing how these insiders are jumping ship and trying to come clean about their tenure in power in an attempt to save their legacy.  Fortunately, like all criminals, they have been careless about covering their tracks.  As Titus has demonstrated, anyone who with enough motivation can pour through public documents and find the truth.

Nice try Ben, but you are tolling a bell that should be tolled for you as well.

SoT #55 – Peter Schiff: When The Dollar Collapses China Won’t Be There To Catch It

Paper money eventually returns to its intrinsic value – zero. – Voltaire

The value of fiat currencies is based on faith – faith in the entity that is issuing the currency. In the case of the dollar, it’s issued by the Treasury and backed by the “full and faith and credit of the U.S. Government.”

In reality the dollar is simply a debt instrument which the Government issues to the public. There is no real objective measure of the dollar’s value.   But let’s examine the “credit” of the U.S. Government.  The Government has issued $18 trillion in Treasury debt.  When the debt ceiling limit eventually is raised, that number will likely quickly jump north of $19 trillion.  It also guarantees about $7 trillion Fannie Mae and Freddie Mac debt.  It also backstops about $1.3 trillion in student debt.

These are just the “funded” liabilities issued to the parties who loaned this money to the Government.  There’s also an estimated $200 trillion of “unfunded” liabilities in the form of promises to make payments associated with Government pensions, entitlement programs, Social Security, etc.

Ultimately headed for a dollar crisis – next time when the dollar falls it will fall vs. the yuan. The next currency crisis will be much worse because when the dollar falls, China won’t be there to catch it.  – Peter Schiff on Shadow of Truth

The average lifespan of a fiat currency over history is 27 years.  The British pound sterling has lasted 300 years but it was originally backed by 12 ounces of silver per unit.  The pound is now worth .5% of its original value.  The U.S. dollar as a fiat currency has lasted, so far, 44 years since Nixon removed entirely the gold-backing.  Since the Fed was founded in 1913, the dollar has lost over 97% of its value.  (Note: the value of fiat currencies are measured vs. gold).

The Shadow of Truth hosted Peter Schiff today.  One of the primary topics was China’s move to begin devaluing currency and to “de-peg” it from the dollar.   Historically, when the dollar plummeted – see 2002 – 2009, for instance – China had to buy dollars and sell yuan in order to maintain the $/yuan peg.  Over the years this cost China a lot of money but it enabled China to continue building its export economy.

The purpose of de-pegging is part of a process that has been initiated by China to prepare the world for a post-U.S. global economy, as we discussed in our China Braces For Impact SoT Market Update.  The next time the dollar starts to head lower, China will let the dollar fall…

…This will also mean that the biggest foreign buyer of Treasury bonds will likely be sitting on its hands when deteriorating U.S. finances force the Treasury to begin issuing trillions of new bonds annually. So when the U.S. needs China’s help the most, it will be unwilling to provide it.

Central Bank Interventions Have Become Extreme

There are no markets anymore – only interventions.  – Chris Powell, Treasurer of GATA

Markets are supposed to act as information transmission mechanisms, with asset prices reflecting all of the fundamental information that goes into the process of “price discovery.”  But when Central Banks and Governments interfere – or intervene – in markets, it completely disrupts the information transmission, price discovery function of markets.

If Central Banks and Governments interfere with markets, there’s no reason to even have markets and it becomes completely useful to participate in financial markets in any capacity, unless of course you have access to the inside information connected to the market intervention.

The extreme volatility of the markets right now is nothing more than 100% evidence of Federal Reserve intervention in U.S. markets.  It also reflects the extreme degree to which the Fed is interfering and manipulating the markets.  Take yesterday for example:

This intra-day graph reflects the tug-of-war that occurred among the Fed’s interventions to prevent the market from a catastrophic drop, the hedge fund algo programs trying to time the Fed’s interventions and the rest of the market trying to unload extremely overvalued stocks.   That demonstrates the degree to which the U.S. capital markets have gone completely off the rails.


It is now widely understood and accepted that Central Banks are actively buying stocks in order to support the equity markets.   Japan openly admits this.  The Swiss National Bank files SEC 13-D filings disclosing its purchases.

If central banks purchase stocks in order to support equity prices, what is the point of having a stock market? The central bank’s ability to create money to support stock prices negates the price discovery function of the stock market.

Dr. Paul Craig Roberts and I co-authored a report which discusses the issue of Central Banks buying stocks.  As it turns out, the Fed is likely the entity funding the Swiss National Bank’s purchases of stocks like Apple and Google.  You can read the entire article here:   Central Banks Have Become A Corrupting Force

With Central Banks attempting to control the direction of markets as a means of dictating policy, it has made any participation in the financial markets completely meaningless.

This will not end well.  History tells us there’s a limit to a Government’s ability to manipulate markets.  At some point the money printing and market support mechanisms will fail and the result will be much worse than if they had let the markets freely determine the outcome.  It’s not a question of “if,” it’s just a question of “when.”

“No Virginia, There Will Be No Rate Hikes This Year”

Fed has been signaling it will raise rates for two years now. Same powerplay as #grexit scare. Won’t happen. System is broken till a Reset – next signal will be QE4 rumors  – Willem Middelkoop on Twitter

Yes!  Someone else who gets it.  Every week we getting these dopes from the Fed coming out and saying “hey man, the Fed is behind the curve – time to raise rates.”  But the even bigger dopes are the dopes who believe the hot air.  And now supposedly the Fed is on track to raise rates twice still this year.

The Fed has been on target to raise rates several times a year ever since Bernanke’s infamous “Taper” speech back in May 2013.   Last time I looked, the flag flying above the White House was not a Japanese flag, but the Federal Reserve, Wall Street, financial media stage show sure looks a lot like Kabuki Theatre – quite literally, “the art of singing and dancing.”


Here’s one of the MAJOR reasons that the Fed won’t touch this rates – not this year and not next year:    Housing Starts Unexpectedly Plunge 11.1%


May housing starts dropped 11.1% in May from April, with single family unit starts falling 5.4% and multi-family units dropping 18.5% (data from the link at the top). Although the month to month data reporting in the housing starts series has been volatile, there has been a definitive downtrend in starts since the beginning of 2013.

You can read the rest of this article I wrote for Seeking Alpha here:   Housing:  Look Out Below

A housing market that is on the precipice of re-collapse is just one of the reasons that the Fed will not be raising rates this year.   The reason the Fed won’t be raising rates next year is because we may well have experienced a systemic reset by then…

Subprime Consumer Debt Soars to 7-Year High

This will not end well:   “The trend stems from lenders and investors seeking high yields in a low-interest rate environment. So it’s no wonder that total household debt rose $306 billion, or 2.7 percent, in the fourth quarter from a year earlier to the highest level since 2010.” (Newsmax)

Subprime lending as a percentage of total consumer lending is now close to where it was right before the financial collapse of 2007 (click to enlarge):


Of course, if you blow away the Orwellian smoke from the Graham-Dodd legislation, U.S. lenders of all varieties are not subject to less scrutiny and oversight than before the de facto financial collapse in 2008.

The Fed’s 6-year ZIRP policy has created a situation in which banks and other financial institutions are now taking excessive risk in order to pick up yield:

Lenders’ interest in customers who were the hardest hit by the financial crisis reflects…firms’ desires to take more risks at a time when ultralow interest rates are depressing profits.  (Wall Street Journal)

This is setting up the next catastrophic systemic financial melt-down and will be the excuse the Government/Fed is looking for to roll out a QE4 program that will have to be larger than the last time around…

In connection with this information, THE best way to play a subprime debt blow-up is to short Amazon.com (NASDAQ:AMZN). AMZN plunged from $407 to $284 at the beginning of 2014 thru early May. It has been unable to hit a new all-time high despite the SPX hitting new highs nearly every day now. I have a report available that will explain exactly why AMZN is eventually going to hit the wall:   AMAZON.CON

The Housing Market And QE4

A couple readers have expressed fear over another round of QE having the affect of juicing the housing market even higher  (or at least the homebuilder stocks).  The fact is, QE1-3 didn’t directly create the housing bubble 2.0.  The massive transfer of foreclosed, defaulted and distressed inventory into big investment funds is what triggered the big move up in prices. increase in unit sales and decline in inventory.  Unit sales volume for new homes remains stuck at less than one-third of the housing bubble peak (new home sales 1995 – 2015, click to enlarge):


More QE will not fix this. In fact, new home sales are going to turn back down – quickly. QE is and always has been first and foremost a device to keep the Too Big To Fail banks from collapsing and, seconarily, a mechanism to fund Treasury debt. That’s it. Any non-investment fund homebuyers who bought a home in the last 3 years used an FHA 3.5% down payment, record low mortgage rate mortgage to make their purchase. That market is saturated. Look at the unannualized, non-adjusted volume trend since July 2013 for BOTH new and existing homes – it’s trending lower.    Some homebuilders are offering NO DOWN PAYMENT mortgages.  I’m looking at one now that has that ad on the front of its home page.  It’s called desperation.

Here’s another reader testimonial to my work:


I read your blog a couple of times a week – noticed your comment on the 750k + inventory build up out there in the Mile High City. As I have noted before I am holding off purchase when I move out there this summer from Chicago due to the inflated prices I am seeing – and you are correct on the inventory build up – in my search process I have access to Core Logic’s home search engine and it seems these high priced homes are coming on the market more and more every day – the little green houses used to mark the homes on the market are beginning to blot out the map of the central and south region down through Larkspur. Was not like this a year ago. Keep up the good work – and thanks for saving my butt!!!

One more thing regarding the build up – there are alot and I mean alot of $1.5 mil and up homes just sitting and sitting. Look at remote areas of Parker, Castle Pines, Roxborough Park area and high end areas around Castle Rock – just scary. Frankly I have no idea who will be buying the homes that are being built in that area called
Ravenna near Roxborough. $1.0 mil is the low end there and alot of them on the market.

I don’t know enough of the dynamics of all this but to say that a correction is due big time in the higher echelons of housing. Again – thanks for saving my butt – was really anxious to make a simple one stop move and realized early enough that buying in this environment is just nothing short of foolish.   Better to sit on cash and wait it out I think.

The homebuilder stocks are insanely overvalued.  They all have debt and inventory levels that at the same level as 2005/2006.   But, look at the unit sales volume back then and now.  The p/e ratios – if they have on at all – are 3-5x what they were at the bubble peak.

The train wreck in these stocks will be EPIC and my research reports show how to make a lot of money on this:   Homebuilder Research Reports.