The Public Is Being Set Up For The Scalping Of A Lifetime

Over the last three days, we have reported that some of the most important investment voices in the world are more than a little scared about the ravenous appetite for risk playing out in the market, and the fact that they have been ignored is beyond unnerving. Central banks are driving all investment decisions, and what this implies is that they are in this trade so deeply that there is no obvious or practical exit.  Richard Brewlow via Zerohedge (link)

Zerohedge posted an essay by Bloomberg’s Richard Breslow that needs some additional commentary.  We already know that western Central Banks have been buying nearly ALL new Government bond issuance for the last 5 years.  We know that Japan’s CB admits to buying equities.  We know that the Fed sticks huge bids in the market for the S&P 500 eminis in order to trigger massive hedge fund HFT algo buy programs of the big S&P 500 contract.   I suspect that the Fed is also buying stocks, which is one of the reasons it is spending million on lobbying to prevent Congress from passing a law forcing an audit of the Fed.

It’s no secret the Fed is thus pushing up the S&P 500 to new record highs almost on a weekly basis. It has prevented the stock market from undergoing a meaningful price correction now for nearly 4 years. Concomitantly, the Fed/Government is now continuously preventing the price of gold from moving higher, although it seems to have lost all ability to push it much lower than $1150.

Meanwhile, the underlying fundamentals of the economy are deteriorating at rate that now rivals the rate at which it was deteriorating in 2008.  I just got an email from someone today who told me that financial analyst Dave Skarica has stated that all midwestern regional banks who gave out loans to U.S. shale producers do not have any loan loss reserves for when these loans go bad.  He also said that NONE of these banks have taken write downs yet on the loans that are now trading between 50 and 70 cents on the dollar in the market.  This means that $100 million loan on a bank balance sheet is worth only $50-70 million based on real market market data, yet the bank is carrying this loan at $100 million.

This situation is magnified at the at the Too Big To Fail Bank level.  Every single TBTF bank has released most of its loan loss reserves back into its income statement over the last 4 years in order to generate GAAP accounting “net income” beats of estimates.  But this is non-cash, phony money.  How about if we get to see JP Morgan’s inside books and see where it has marked unsold, unsyndicated bank loan paper to near-insolvent shale companies. I’d bet my dog’s life they have that debt marked at 100 cents on the dollar even though it’s likely worth, at most 50 cents.

The Fed has no choice but to chase the stock market higher and keep interest rates at zero. Hell, if the Fed were to let rates normalize, it would suffer huge losses on all the Treasury and mortgage debt it purchased over the last 5 years – $3.6 trillion of debt that would lose at least 5-10% of its value.  The Fed would be technically insolvent.

Central Banks and their sovereign wealth funds have become the major players dominating market activity. One central banker after another has admitted they are fixated on market reaction to their comments and actions…A wise central banker told me I should learn to live with central banks being the dominant force in the market, whether I like it or not.  – Breslow from link at the top

Note:  I disagree with Breslow’s description of the referenced central banker as being “wise.”  Ruthlessly unethical and insidiously corrupt, yes.  “Wise?”  Probably not.  

Futhermore, the only dynamic keeping most pension funds from imploding is an overexposure to the stock market that keeps going higher on manufactured monetary helium.  If the Fed were to let the stock market find it’s natural trading level, it would lose at least 50% of its value – quickly.  It would blow up countless pension funds.  The problem would be magnified by a factor 2-3x if the Fed were to let interest rates embark on true price discovery.  Pension fund fixed income holdings would plunge in value.  Pension funds would become hopelessly underfunded from their current status of being just significantly underfunded.

In other words, if the Fed were to step away from its non-stop market intervention and manipulation, the entire financial system would collapse.  At some point this entire Ponzi scheme is going implode, despite the increasingly blatant and obvious attempts by the Central Banks to keep it the steroid-addled gerbil on the wheel.

Remember Enron?  It was one big fraud, for the most part.  Almost no one saw the speed and force with which Enron was incinerated.  I was short Enron stock in the $40’s.  It dropped to the teens and I covered, thinking the worst was over.  Not too long after that Enron filed bankruptcy and was revealed to be largely an empty shell.  It had erected entire floors of energy trading desks that were only used when the Company was trying to sell stock or bonds to investors doing due diligence. It was complete lie.

Enron is a microcosmic metaphor for the entire U.S. financial and economic system. It has little substance and an unimaginable amount of fraudulence masquerading in the form of an economy.   If you were to subtract all of the fraudulent accounting, the fraudulently compiled Government economic data, all of the debt and all of the derivatives on a true mark to market basis, the United States would be nothing more than one giant version of Enron.

Most people have no clue whatsoever of the economic devastation that is coming at us down the system pipeline.  But Central Banks will eventually lose control of this insanity they have created – history has already spoken repetitively on that matter.  And certainly no one can predict the timing of when Central Bank control is lost. But when this does occur, the entire U.S. financial system will be incinerated like Enron. Only this time around everyone will be ruined, rather than just a few stupid Enron stock and bondholders.

17 thoughts on “The Public Is Being Set Up For The Scalping Of A Lifetime

  1. This is why the oil price was allowed to go higher again. It’s not all improving fundamentals why oil is rising. If oil didn’t start to rise, the collapse in US shale oil producers could have immediately started to collapse banks. I believe shale oil junk bond debt issuance are much larger than sub prime housing bubble ones were?

  2. Usual sound commentary. Thanks Dave.

    However, if I may impudently suggest a correction to the title:

    The GLOBAL Public Is Being Set Up For The BIGGEST Scalping IN HUMAN HISTORY.

    “I can tell you right now that there is going to be a crash of unprecedented proportions- a crash like we have never seen before in this country. The greatest shock of this decade is that more people are about to lose more money than at any time before in history, but the second greatest shock will be the incredible amount of money a relatively small group of people will make at the same time. You see, in periods of economic upheaval, in periods of economic crisis, wealth is not destroyed-it is merely transferred.”

    Larry Bates was a bank president for eleven years. As a member of the Tennessee House of Representatives, he chaired the Committee on Banking and Commerce. He’s also a former professor of economics and the author of the best-selling book, The New Economic Disorder.

    1. The model Larry Bates uses is incorrect.

      “The greatest shock of this decade is that more people are about to lose more money than at any time before in history, but the second greatest shock will be the incredible amount of money a relatively small group of people will make at the same time. You see, in periods of economic upheaval, in periods of economic crisis, wealth is not destroyed-it is merely transferred.”

      My suggestion:
      People who lose fiat money do not lose money, because they never owned any money.
      In the flash moments of upheaval no wealth is transferred. Only those who already own physicals will keep owning it. Those who own fiat paper will keep owning it – as a worthless heap of paper.

  3. This is how quick things change;

    Over the past four year period, the Chinese new stock accounts opened, averaged about 250,000 per year. Just within the past four months over 3 million new Chinese stock accounts have opened! Wow!
    Just think for a moment. If just 50% of those new accounts buy stocks using margin debt and there is a crash… Margin call! It’s the global public Dave, that will be scalped!
    Irrational exuberance, buying frenzy, herding instincts, greed, seeking yield, call it what you will, but this will not end well.

  4. It seems like the g man is getting all his ducks in a row before they pull the plug. Think of the rules about taking people’s money ,JadeHelm and so many others.

  5. Here, Claudius plays Central Banker to Mad Emperor Caligula – a prior incarnation of Jamie Dimon – handing him loaded dice:

  6. While I agree in general, the timing is tough.

    Enron collapsed because its scale was within the U.S. markets. Not necessarily operationally, but it was a U.S. company enclosed within U.S. markets.

    Here we’re talking about the entire rigged market, held up by people who
    don’t/cant be held accountable from within the U.S. market.
    (Store owner facing robber: I’ll call the cops.
    Robber facing store owner: I am the cops.)

    So until something changes outside the system, which may be happening, I say nothing changes, unfortunately.

    whenever it happens, the little guy gets screwed.

    1. While the little guy gets screwed , the perpetrators will be on the first flight on
      El Al to Tel Aviv , which has no extradition treaty with America !

  7. Great article.

    Well, at least I only put a few hundred dollars on QQQ puts. I’ve never seen money disappear so fast.

    Hopefully we get the blow-off top this summer so this insanity can come to an end.

  8. Dave wrote “Most people have no clue whatsoever of the economic devastation that is coming at us down the system pipeline”.// May I add the word “absolutely” between have and no. I watch colleagues, friends….. in the age of mine (~50) in that regard. Most of them are well educated people. But,…they don’t have the slightes !!! clue whatsoever with regard to the current shape of our financial system. We may discuss at this point when TSHF happens…but people that read on Dave’s site know it will. But it is not that, people a) do not know the money creation process by the CB’s of that world even on a basic level, b) they are not aware that they have parked their savings in giant Ponzi scheme, c) ask them if they know the FED’s Monetary base chart over recent years, they have never seen it,…..d) sure, many of them experienced several stock markets declines, recessions…..but they will tell you: if it happens again, so what, recovery will follow sooner or later and everything will be fine again. What I actually want to say is this: Most people do not foresee that the next crisis will be THE BIG ONE. That after it the (at least financial world) world will have changed, and the purchasing power of their bank account, too. As most of the people don’t care they will need to aks themselves: Who was responsible for the calamitiy?

  9. I have that feeling that the bubbles are now too big to burst… And that the powers that be know that.

    In other words, when these bubbles (stock bubble, bond bubble, real estate bubble, student loan bubble, Dotcoms 2.0 bubble, precious metal shorting buble, …. You name it : everything is a bubble) explode, … This will be the end of the monetary system as we know it.

    Which leads me to 2 conclusions :

    1) The bubble will take longer to burst than we all expect,… Because the powers in place are doing everything in their power to keep any bubble from bursting.
    Just one bubble bursting would have cascading effects on the others…
    Of course, I think that this system is about to end : I have been thinking this for nearly 2 years…

    2) When it finally bursts, it will be a big money reset, the kind some people have been expecting for a long time…
    The worldwide economic system will come to a halt. They (the powers in place) won’t be able to cover all of their lies. Therefore, we will have huge civil disorders ahead… And the death toll will be very important.

    Hence my conclusion : Bernanke is a mass-murderer, on the same level as Adolf Hitler and Staline.
    Yellen and Draghi are his Goebbels and Goering.

  10. One more comment from my side: Lots of people like D. Morgan, Jonathan Cahn (from a religious point of view, Shemitah year..), also Mike Maloney …. (I saw an Insider Video of him today), J. Turk, maybe also you, Dave, ….talk about “the Shit hits the Fan” event coming this fall. A lot of their (your) justifications seem to be very reasonable, but what leaves me kind of skeptical in that reagard is the fact that crashs usually don’t occur with prior announcement. Maybe I am wrong on that.

  11. I think that a meltdown could happen very quickly due to the huge leverage in the derivatives market. All it would take is the failure of one large bank to start a chain reaction of failures. The central banks have printed up so much money they probably won’t be able to stop it this time. Things like JADE HELM suggest that TPTB are preparing for a collapse and not a bad correction.

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