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The Flim-Flam Men

The Flim-Flam Men

I suspect if average Joe or Jane were asked to identify modern examples of ‘Flim-Flam Men’, many would point to Bernie Madoff or Allen Stanford. (Remember them from the last “Great Financial Crisis” of 2008?) Or even to a long list of Too Big To Fail bank CEO’s past and present, plus various corporate, government and Federal Reserve officials who’ve graced our lives over the last twenty or more years.

And you know what? I couldn’t argue with them for a second because they’d be correct. But do those examples really illustrate the deeper, more mundane meaning of the common street hustle or financial confidence game? And are we in denial of our own critical role in ‘The Big Con‘?

Madoff and Stanford (and the Federal Reserve of course) would fall into the category of ‘The Big Con’ since they successfully roped thousands, even tens of thousands, of people into their web of deceit. More importantly, they fleeced their ‘marks’ for years, decades even, and every single mark was smiling right up until the end. Why? Because everyone thought they were on the inside track to a sweet heart deal that paid better than average returns. In other words, they were ‘chosen’ (usually because of their own self described brilliance) and thus they had a leg up on everyone else. That is, until reality rushed in to fill the vacuum and their glorious illusion imploded.

What I wish to explore here is some of the emotional and psychological components of the common confidence game (professional money management subdivision, three-card Monte category) perpetrated on the public by the political and financial ‘industry’ in general, and some of our local money managers/financial advisors in particular. It’s one thing to run a onetime financial con on an individual or small group of people and another entirely to do so consistently, ‘professionally’ and as an accepted member of society.

…click on the above link to read the rest of the article…

The Fed Isn’t a Magic Money Tree

The Fed Isn’t a Magic Money Tree

The Fed Isn’t a Magic Money Tree

There seems to be no end to the Federal Reserve’s arrogance. Fed officials believe that through their wise actions, they can eliminate the business cycle, lower unemployment and make society prosperous.

But it’s actually much more limited in what it can do.

All the Fed can reliably do is stop bank runs and limit liquidity panics. It can also fund (or “monetize”) the U.S. federal deficit, as it has done in recent months.

By buying essentially the same amount of U.S. Treasury securities the government has issued, the Fed has taken pressure to fund mammoth federal deficits off of the private sector.

But such actions are not cost-free.

They store up trouble for the future. These actions swell the Fed’s balance sheet, which will limit the Fed’s flexibility and its willingness to tighten policy during the next inflation spike.

The more the Fed intervenes, the harder it is for it to reverse course without causing damage.

By promising the public that it can do anything more than offer dollar liquidity, the Fed is setting up both investors and workers for disappointment.

Yet it’s going to try anyway. And it’ll only undermine its limited reputational capital in the process.

“Yield Curve Control”

The Wall Street Journal recently reported that the Fed is considering implementing “yield curve control” in the Treasury market. This policy hasn’t been used since WWII and the early postwar period.

It essentially funded the war effort. If unleashed today, it wouldn’t be done to support a civilization-saving war effort but to maintain the debt-saturated economy to which we’ve become accustomed.

Here’s how it would work in practice:

The Fed would set a target range, or cap, on yields for Treasury bonds of a specific maturity — say, 3-, 5- or 7-year Treasuries.

…click on the above link to read the rest of the article…

Weekly Commentary: More W than V

Weekly Commentary: More W than V

The much vaunted “V” recovery is improbable. To simplify, a somewhat “w”-looking scenario is a higher probability. After such an abrupt and extraordinary collapse in economic activity, a decent bounce was virtually assured. Millions would be returning to work after temporary shutdowns to a substantial chunk of the U.S. services economy. There would be pent-up demand, especially for big ticket home and automobile purchases. A massive effort to develop vaccines would ensure promising headlines.

With incredible amounts of liquidity sloshing around, constructive data supporting the “V” premise were all the markets needed. The enormous scope of hedging and shorting activity back in the March and April timeframe ensured the availability of more than ample firepower to fuel a rally. An equities revival would then spur a general restoration of confidence and spending – in a self-reinforcing “V” dynamic.

Inevitably, highly speculative Bubble Markets inflated way beyond anything even remotely justified by the fundamental backdrop – actually coming to believe the “V” hype. The rapid recovery phase, however, will prove dreadfully short-lived. Scores of companies won’t survive, and millions of job losses will prove permanent. Fearful consumers have made lasting changes in spending patterns, with many retrenching. Tons of fiscal stimulus will be burned through with astonishing rapidity. And a raving Credit market luxuriating in Fed monetary inflation will confront Credit losses at a breadth and scale much beyond the last crisis.

My concern has been that the COVID dislocation would be with us for a while. It’s surprising we haven’t seen at least some relief as summer unfolds. I was not expecting major outbreaks in Arizona, Florida, Texas and Southern California this time of year.

…click on the above link to read the rest of the article…

Into Darkness: Where The Fed Is Leading Us

Into Darkness: Where The Fed Is Leading Us

The system is hurtling towards breakdown. Protect yourself now.

As you may know, I was one of the very first voices publicly reporting on covid-19, issuing an alert that the virus was a significant pandemic event on Jan 23rd, 2020.

This was long before most media outlets even managed to write their first “It’s just the flu, bro!” article.

Using the same logic and scientific methodology I was trained in as a PhD, I was able to “predict” things well in advance of nearly every official or mainstream news source.

I’m using quotation marks around the word  “predict” because it’s not really a prediction when you’re just extrapolating trends that are already underway.

Just as it’s not really a “prediction” to estimate where a thrown pitch will travel, it wasn’t much of a prediction to state that a novel virus with an R-Naught (R0) of well over 3 would be extremely difficult to contain once it arrived in a country.  Note that I didn’t say impossible — South Korea, Australia, New Zealand, Thailand, Taiwan and Vietnam all get high marks for containment — but certainly difficult.

The US and the UK proved this in spades, as they’re both led by below-average ‘managers’ rather than leaders.

Leaders make tough decisions based on imperfect information.  Managers dither and hedge and only make up their minds after the facts are already in and events well underway.  Naturally, the US/UK managers were simply no match for the exponential rate that the Honey Badger Virus (aka Covid-19) spreads at.

I call it the Honey Badger virus because of its incredible ability to evade quarantine, as eagerly and easily as Stoeffle, as seen in this short enjoyable video:

…click on the above link to read the rest of the article…

ECB v Fed

ECB v Fed

QUESTION: Martin,

You mentioned in a recent blog post that the ECB, unlike the FED, can go bankrupt.

Can you explain further?

Not sure where you get the time, energy and resources to research and write all that you do buy it is truly amazing.

Regards,

M

ANSWER: The Federal Reserve does not need permission to create elastic money. It has the authority to expand or contract its balance sheet. However, it cannot simply print money out of thin air. The ECB is the only institution that can authorize the printing of euro banknotes. The Federal Reserve must back the banknotes by purchasing US government bonds. The Fed buys and sells US government bonds to influence the money supply whereas the ECB influences the supply of euros in the market by directly controlling the number of euros available to eligible member banks. This structure was created because of Germany’s obsession with its own hyperinflation of the 1920s.

Each member state retained its central bank and those central banks issue the banknotes — not the ECB. Therefore, the ECB works with the central banks in each EU state to formulate monetary policy to help maintain stable prices and strengthen the euro. The ECB was created by the national central banks of the EU member states transferring their monetary policy function to the ECB, which in effect operates on a supervisory role.

There are four decision-making bodies of the ECB that are mandated to undertake the objectives of the institution. These bodies include the Governing Council, Executive Board, the General Council, and the Supervisory Board.

…click on the above link to read the rest of the article…

Can Too Big For Fed & ECB

CAN TOO BIG FOR FED & ECB

There are lies, damned lies, and economists. Whether these economists work for the government or a bank, they spend all their time on the computer extrapolating current trends with minor adjustments. 

If you want to understand the future, don’t spend your life preparing and constantly revising an Excel sheet with masses of economic data. Collective human behaviour is extremely predictable. But not by spreadsheet analysis but by studying history. 

HISTORY IS A BETTER FORECASTER THAN ECONOMISTS

There just is nothing new under the sun. So why is there so much time and money wasted around the world to make economic forecasts that are no better than a random job by a few chimps?

Instead, give some lateral thinkers a few history books and let them study the rise and decline of the major empires in history. That will tell them more about long term economic forecasts than any spreadsheet. 

After a 50 year decline of the US economy and the dollar, we still hear about the V-shaped recovery being imminent. 

On what planet do these people live who believe that a world on the cusp of an economic and social collapse is going to see a miraculous recovery out of the blue. 

This is the problem with a system that is totally fake and dependant on constant flow of stimulus even though it has zero value. Most people are fooled and believe it is for real.

ALL EMPIRES END WITH COLLAPSING CURRENCY AND SURGING DEBTS

We are now in the final stages of the end game. The end of the end could be extended affairs or they could be extremely quick. Most declines of major cycles are drawn out and this one has lasted half a century. During that time the dollar is down 50% against the DM/Euro and 78% vs the Swiss franc. And US debt has gone up 65x since 1971 from $400B to $26T. A collapsing currency and surging debts are how all empires end.

…click on the above link to read the rest of the article…

Curing COVID-19 Won’t Cure the Economy

Curing COVID-19 Won’t Cure the Economy

We have been making the case for weeks that we aren’t heading for a quick recovery. We’ve reported on the number of people of small business owners who don’t think they’ll survive, the increasing number of over-leveraged zombie companies, and the tsunami of defaults and bankruptcies on the horizon. Yes, we have seen some economic numbers that are better than expected, but it’s all a function of a Federal Reserve-induced sugar high. The ugly truth is that given the amount of stimulus that the Federal Reserve and the US government have pumped into the economy, unwinding it all will be mission impossible. All of this certainly raises serious questions about the possibility of a “v-shaped” recovery.

We’re not alone in making this case. In the following article recently published at the Mises Wire, economist Brendan Brown provides some additional arguments and asserts  that even if COVID-19 disappeared today, the economy isn’t going back to “normal.”

The opinions expressed are those of Brendan Brown and for your consideration. They do not necessarily reflect those of Peter Schiff or SchiffGold.

Speculative frenzy in the midst of recession is not a new phenomenon. Yet the extent of the “madness” this time might well beat records in the small sample size available from the history laboratory. The combination of extreme monetary radicalism and a receding supply shock has proved to be a potent toxic, impairing mental processes in ways described by the behavioral finance theorists. The pandemic stock “bubble” and resumed hectic demand for risky credit paper provide illustrations.

…click on the above link to read the rest of the article…

Plot Thickens on End of QE & Start of Shedding Assets

Plot Thickens on End of QE & Start of Shedding Assets

Fed leads in trimming its balance sheet; Bank of England governor publishes the reasoning for central banks to shed assets – before raising interest rates. A big shift!

The Fed has been cutting back for weeks on its asset purchases, and on its last weekly balance sheet, its total assets actually fell by $74 billion. Now Bank of England Governor Andrew Bailey published a piece on Bloomberg Opinion today in which he wrote that these massive central-bank balance sheets – he was talking in global terms – “mustn’t become a permanent feature.”

“As economies recover, it’s likely that some of the exceptional monetary stimulus will need to be withdrawn,” he said. And this shedding of part of the bonds that had been purchased would happen before the central bank raises interest rates, he said.

This is the opposite of how the Fed did it last time: It started raising rates in December 2015 and started shedding Treasury securities and MBS in October 2017.

This time, the Fed front-loaded $2.8 trillion in QE and has already started shedding some of it even as FOMC members don’t see interest rate hikes through 2022. This is a big shift, of reducing the balance sheet first, and then raising rates.

In Bailey’s piece, there was no word of negative interest rates or yield curve control. What he is saying is that the balance sheet became the primary tool for adding stimulus and will become the primary tool for withdrawing stimulus, as interest rates remain near-zero.

And he is saying that the BOE’s balance sheet isn’t going to stay this massive for long and that it will undo some of the accommodation as the economy figures out where the new normal is.

The Fed is leading. The BOE is publishing the reasoning for other central banks to do the same.

…click on the above link to read the rest of the article…

Fed Accountability is a Farce

FED ACCOUNTABILITY IS A FARCE

The Fed claims they are “accountable to the public and the U.S. Congress.” But what good is accountability, if the public and Congress have little understanding of what the Fed does? Even worse, if no one has the power to stop the inflationary actions of the Fed, what good are the accountability measures in place?

This week, Chair Powell addressed Congress and provided the June Monetary Policy Report. The process of testifying before Congress is very much farcical because what the Fed says has no bearing on what the Fed does. We can assume few members of Congress actually understand monetary economics. But what if many of them did, as well as the general public, could the Fed really get away with all of this?

Reviewing the Chair’s testimony to Congress reveals how little the Fed and Congress know about economics and illustrates how ineffective testimony before Congress really is.

In his speech, Powell lists many of the lending programs (Paycheck Protection Program, Main Street Lending Program and Term Asset-Backed Securities Loan Program) but when it comes to corporate bond buying program, all he offered was:

To support the employment and spending of investment-grade businesses, we established two corporate credit facilities.

Like a teenager trying to hide purchases made on a parent’s credit card, he did not explicitly list the Primary and Secondary corporate credit facilities by name. He only said the two “corporate credit facilities,” the only two the Fed has. How issuing debt to corporations or trading their bonds on the stock exchange supports employment or spending is anyone’s guess. What does it matter anyway? Even if he said $750 billion may go to buy corporate bonds, who would stop them?

He moved from vagueness to deception quickly with the statement:

…click on the above link to read the rest of the article…

REVEALED: The Fed’s Next Trick

REVEALED: The Fed’s Next Trick

REVEALED: The Fed’s Next Trick

Today we lower our ear to the rail… and report the approach of a rumbling locomotive.

Free and honest markets are roped to the tracks, squirming, writhing, sobbing.

This iron horse is barreling toward them. Mr. Jerome Powell is at the controls…

And murder is on his mind.

What is the Federal Reserve’s latest plot against the remains of free and honest markets?

And will it pull off the caper?

Answers anon.

We first look in on the seemingly condemned — squirming, writhing, sobbing on the tracks…

A Quiet Day on Wall Street

The day counted plus and minus.

The Dow Jones lost 39 points. The S&P scratched out a 1.85-point gain today. The Nasdaq, meantime, took the ribbon with a 32-point advance.

A dull affair altogether. Yet tomorrow may bring high adventure of course.

And so we now return to today’s central question:

What is the Federal Reserve’s latest plot against the remains of free and honest markets?

Let us first flip back the calendar to the war year of 1942… where our tale begins.

How the Fed Fought WWII

Wars are costly enterprises. And taxes alone would not purchase the arsenals of democracy.

Uncle Samuel therefore held his cap before the bond market… and went upon the borrow.

But the authorities were hot to keep borrowing costs within reasonable limits.

The Federal Reserve and the Treasury Department therefore signed onto an agreement:

The Federal Reserve would place a cap on the government’s borrowing costs.

This it accomplished by purchasing any government bond with yields above a predetermined level.

These purchases shrunk the yield (purchasing Treasuries hammers down the yield; selling Treasuries ratchets yields higher).

…click on the above link to read the rest of the article…

The Fed’s Couldn’t Even Stomach a 10% Drop in Stocks… It’s Officially in the Bubble Business

The Fed’s Couldn’t Even Stomach a 10% Drop in Stocks… It’s Officially in the Bubble Business

The Fed will soon be buying stocks.

Earlier this week, the Fed announced that it will begin buying corporate bonds from individual companies. Before this announcement, the Fed was already involved in the:

  • The Treasury markets (US sovereign debt)
  • The municipal bond markets (debt issued by states and cities)
  • The corporate bond markets by index (debt issued by corporations)
  • The commercial paper markets (short-term corporate debt market)
  • And the asset-backed security markets (everything from student loans to certificates of deposit and more).

With the introduction of individual corporate bonds, the Fed is now one step closer to buying stocks outright.

Indeed, the Fed has made ZERO references to stopping its monetary madness. Just yesterday Fed Chair Jerome Powell emphasized to Congress that the Fed is “years away from halting its assets monetization scheme.” 

Again, the Fed is explicitly telling us that it plans on buying assets (Treasuries, municipal bonds, corporate bonds, etc.) for years to come.

The next step will be for the Fed to buy stocks.

It won’t be the first central bank to do so…

The central bank of Switzerland, called the Swiss National Bank has been buying stocks for years. Yes. It literally prints money and buys stocks in the U.S. stock markets.

Then there’s Japan’s central bank, called the Bank of Japan. It also prints money and buys stocks outright. As of March 2019, it owned 80% of Japan’s ETFs.

Yes, 80%.

The BoJ is also a top-10 shareholder in over 50% of the companies that trade on the Japanese stock market.

If you think this can’t happen in the US, think again. The Fed told us in 2019 that it would be forced to engage in EXTREME monetary policies during the next downturn.

…click on the above link to read the rest of the article…

Goodbye, Free Market

Goodbye, Free Market

Fremdschämen.

Fremdschämen is a noun of the German language. It translates this way:

Embarrassment for those incapable of feeling embarrassment.

Today we suffer embarrassment for Mr. Jerome Powell and his fellows of the Federal Reserve…

For no action they take lowers their heads in shame… or blushes their cheeks with embarrassment.

Mr. Powell is simply in the hands of Wall Street… and on his knees to Wall Street.

Well does he know the taste of shoeblack.

Yesterday Mr. Powell got a fresh coat on his tongue. Details to follow.

But first, let us look in on his masters…

A Banner Day on Wall Street

Wall Street was in full roar today.

The Dow Jones jumped an additional 582 points. The S&P gained 58 points; the Nasdaq, 169 points of its own.

CNBC, by way of explanation:

Stocks rose on Tuesday as a record jump in retail sales — coupled with positive trial results from a potential coronavirus treatment and hopes of more stimulus — sent market sentiment soaring.

Government number-torturers reported this morning that May retail sales jumped a record 17.7%.

The chronically erring Dow Jones survey of economists had projected a 7.7% increase.

Yet we are not surprised by the surge. April’s numbers were true abominations. But certain economic restrictions were waived in May.

A trampolining back was therefore expected.

Meantime, a medicine named dexamethasone — a widely available medicine — is evidently effective in the treatment of deathly ill coronavirus patients.

It reportedly axed hospital deaths by perhaps one-third.

Thus the market had its spree today. But it merely added to yesterday afternoon’s joys…

Powell Licks Wall Street’s Shoes

The Dow Jones had been off 762 points in early trading yesterday, quaking with coronavirus-related fear.

But then Mr. Powell sank to his knees… and tongued Wall Street’s wingtips…

…click on the above link to read the rest of the article…

The Fed Just Admitted It Won’t Stop Printing Money For YEARS… Here’s How to Profit From This

The Fed Just Admitted It Won’t Stop Printing Money For YEARS… Here’s How to Profit From This


The Fed will soon be buying stocks.

Earlier this week, the Fed announced that it will begin buying corporate bonds from individual companies. Before this announcement, the Fed was already involved in the:

  • The Treasury markets (US sovereign debt)
  • The municipal bond markets (debt issued by states and cities)
  • The corporate bond markets by index (debt issued by corporations)
  • The commercial paper markets (short-term corporate debt market)
  • And the asset-backed security markets (everything from student loans to certificates of deposit and more).

With the introduction of individual corporate bonds, the Fed is now one step closer to buying stocks outright.

Indeed, the Fed has made ZERO references to stopping its monetary madness. Just yesterday Fed Chair Jerome Powell emphasized to Congress that the Fed is “years away from halting its assets monetization scheme.” 

Again, the Fed is explicitly telling us that it plans on buying assets (Treasuries, municipal bonds, corporate bonds, etc.) for years to come.

The next step will be for the Fed to buy stocks.

It won’t be the first central bank to do so…

The central bank of Switzerland, called the Swiss National Bank has been buying stocks for years. Yes. It literally prints money and buys stocks in the U.S. stock markets.

Then there’s Japan’s central bank, called the Bank of Japan. It also prints money and buys stocks outright. As of March 2019, it owned 80% of Japan’s ETFs.

Yes, 80%.

The BoJ is also a top-10 shareholder in over 50% of the companies that trade on the Japanese stock market.

If you think this can’t happen in the US, think again. The Fed told us in 2019 that it would be forced to engage in EXTREME monetary policies during the next downturn.

…click on the above link to read the rest of the article…

US Money Supply – The Pandemic Moonshot

US Money Supply – The Pandemic Moonshot

Printing Until the Cows Come Home…

It started out with Jay Powell planting a happy little money tree in 2019 to keep the repo market from suffering a terminal seizure. This essentially led to a restoration of the status quo ante “QT” (the mythical beast known as “quantitative tightening” that was briefly glimpsed in 2018/19). Thus the roach motel theory of QE was confirmed: once a central bank resorts to QE, a return to “standard monetary policy” becomes impossible. You can check in, but you can never leave.

Phase 1: Jay Powell plants a happy little money tree to rescue the repo market from itself (from: “The Joy of Printing”).

It is easy to see why. Any attempt to seriously reduce outstanding central bank credit will bring about the very situation QE was intended to prevent, i.e., falling asset prices and an economic bust. Seemingly no-one in officialdom ever stops to ask why that should be so. What happened to “self-sustaining recoveries” and “achieving escape velocity”? Could it be the economy is neither a perpetuum mobile nor a space ship?

Before we consider this question, here is what has happened since then: shortly after the double-plus-uncool novel SARS-2 corona-virus traversed several ponds and made landfall in the US, Mr. Powell and his fellow merry pranksters decided to water the money tree with super-gro. Or maybe it was hyper-gro:

The “QE” roach motel, illustrated by the history of the Fed’s balance sheet.

That is a rather noteworthy bout of inflation. Readers may have noticed that in the realms of finance and economics there has also been an inflation of verbiage describing never before seen extremes.  By its very nature, one would normally not expect to hear the term “unprecedented” very often, but it has become disconcertingly commonplace in connection with monetary pumping, deficit spending and debt growth.

…click on the above link to read the rest of the article…

Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow of Funds

Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow of Funds

Financial crisis erupted in March. The Fed slashed rates at a March 3rd emergency meeting – and then began aggressively expanding its holdings/balance sheet (creating market liquidity). Even from a “flow of funds” perspective, it was one extraordinary quarter.

Total Non-Financial Debt (NFD) surged a nominal $1.597 TN during the first quarter ($6.379 TN seasonally-adjusted and annualized!) to $54.325 TN. This was the strongest quarter of NFD growth on record (blowing past Q1 2004’s $1.234 TN). Indeed, Q1 growth surpassed full-year NFD expansions for the years 2009, 2010, 2011 and 2013. This pushed one-year growth to $3.271 TN (6.2%), significantly exceeding 2007’s record $2.521 TN expansion. NFD increased $20.857 TN, or 59%, since the end of 2008. NFD as a percentage of GDP rose to a record 260%. This compares to previous cycle peaks of 226% (Q4 ‘07) and 183% (Q4 ’99).

Financial Sector borrowings jumped $963 billion during Q1, surpassing the previous record $656 billion from Q3 ’07. This pushed one-year Financial Debt growth to $1.247 TN (7.6%), the strongest expansion since ‘07’s $2.065 TN.

Total Credit (Non-Financial, Financial and Foreign) surged nominal $2.391 TN for the quarter to $77.861 TN, surpassing previous record growth from Q1 ‘04 ($1.512 TN). One-year growth of $4.790 TN was the strongest since 2007. Total Credit jumped to 362% of GDP, the high going back to 2010.

Federal Liabilities (excluding massive “contingent”/off balance sheet liabilities) jumped to $22.0 TN during Q1. At 102%, Federal Liabilities surpassed 100% of GDP for the first time in at least six decades. For perspective, Federal Liabilities ended the seventies at 50% of GDP; the eighties at 63%; the nineties at 59%; and 2010 at 85%. It would not be surprising to see this ratio approach 150% over the next three to five years.

Outstanding Treasury Securities jumped nominal $500 billion during the quarter to a record $19.518 TN. This pushed one-year growth to a staggering $1.612 TN (9.0%) and two-year growth to $2.472 TN (14.5%). Treasuries ballooned $13.467 TN, or 223%, since the end of ’07. Treasuries-to-GDP jumped to 91%, more than doubling the 41% from the end of 2007.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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