Thursday, January 26, 2012
The Fed Cannot Act Without a Crisis... And One is Coming
Well the Fed disappointed as I stated it would. How anyone could be surprised by this is beyond me. The Fed was admitting that the consequences of QE rendered it less "attractive" as an option as far back as May 2011.
Moreover, the last six months have shown the Fed to be relying heavily on verbal intervention rather than direct monetary intervention. Every FOMC meeting (and any time the market takes a dive) some Fed official steps forward and promises that the Fed stands ready to help if needed.
The reasons for this are three fold:
1) Why bother with monetary intervention when you can get the same effect from verbal intervention?
2) The Fed is too politically toxic now to simply unveil a massive new monetary scheme without a Crisis hitting first.
3) The Fed is well aware of the consequences of QE (higher food and gas prices) and while it focuses on CPI as the measure of inflation, the political pressure engendered by higher costs of living are certainly on the Fed's radar.
In plain terms, the bar for more QE is set much, much higher than the vast majority of analysts realize. The reason is that the Fed can no longer simply prime up the printing presses if the economy takes a dip.
We've seen this clearly in the last two Fed FOMC statements, in which the Fed downgraded its view of the US economy to posting "modest growth" (Fed speak for next to none) and then offered a "highly accommodative stance," (Fed speak for "we're out of ideas but can always hit the 'print' button") as way of dealing with this.
Let's cut the BS here. The Fed has maintained a more than highly accommodative stance for three years now and U-16 unemployment, food stamp usage, home prices, and virtually every other economic metric indicate that they've done little to boost the US economy in any meaningful way. QE has and always will be about boosting asset prices in the hope that the Fed can stimulate a recovery by getting the S&P 500 to some level.
The only problem with this is that people don't engage in financial speculation to pay their bills. Incomes have and always will be the single most important metric for gauging consumer strength. And the Fed's policies of the last few years have done nothing to boost incomes (unless you work on Wall Street).
If you read headlines stating "Fed Gave Trillions to Banks" and you've been laid off and are living off food stamps, your blood pressure might tend to rise.
And you might tend to vote based on that.
Folks, the reality is that the Fed's hands are tied. That's why they keep issuing these innocuous policies (keeping interest rates low until 5056 or some insane future date) without actually doing anything. They know that additional easing means inflation soaring, which makes the Fed that much more a target of popular outrage.
So if you're counting on the Fed propping the market up throughout 2012 as it did in 2011, you may be in for a rude awakening in the coming months. Every day that we get closer to the 2012 Presidential election, the bar for more QE goes higher and higher. Truly unless we get some kind of major Crisis, the Fed won't be doing much of anything.
So let the traders run their "end of the month" games this week. But don't be surprised if stocks start to take a dive in early February.
Labels: Crash, crisis, Debt crisis, Deflation, End game
Monday, January 23, 2012
They do NOT get it
This is the very same game we've been playing for over two years now. Greece is broke. Everyone knows it. The Greeks know it. Greek politicians know it. EU politicians know it. Even the IMF knows it. The only people who don't seem to "get it" are stock investors that invest for one reason only:
1) The hope of more juice/ intervention from Governments/ Central Banks
That one sentence dictates ALL market action today: the hope of a stupid policy (spending more money), which has failed to solve anything. It's amazing that this is what the markets have become. What's even more amazing is that people are actually paid (large salaries) to engage in this stupid behavior.
Honestly, how many times have we heard rumors that Greece was solved? How many "officials" claimed a deal was close? How many investors bought based on these outright lies?
Moreover, it's not as though the actual proposals that do get announced are worth the paper they're written on. A 50% haircut on private bondholders of Greek debt accomplishes nothing (Greece's Debt to GDP would still be north of 120%). The only way Greece gets back to some semblance of solvency is a complete and total wipe out of all debt other than that held by the Troika (though they should take a hit as well).
This whole mess will end terribly. Greece will default. The default will be bigger than 50% (likely 70-80%). Italy, Spain, and other EU members will default as well. This will happen. There is no question about it.
However, right this week, the market is waiting for more juice from the Fed's Jan 25 FOMC and the hope of a Greek deal out of Europe. For that reason stocks have gone almost straight up for the last two weeks.
By the look of things we've got a messy bearish rising wedge here. We're now testing resistance in the form of the upper trendline.
What's truly interesting here is that the Emerging Market space has been lagging US stocks in a big way on this move: a marked difference from the market action that preceded QE lite and QE 2.
The same goes for commodities and other "Risk On" assets, which are not even close to exceeding recent highs:
So... are stock investors smarter than everyone else... or are they just gunning the market on low volume yet again regardless of reality? We'll find out this week once we get past the Fed FOMC and Europe's decision on Greece.
Wednesday, January 18, 2012
Germany's Fed Up and Getting Ready to Walk
The reasons for this are simple:
1) The German public and court system won't stand for QE from the European Central Bank
2) Issuing Euro bonds goes against the German constitution
3) Germany has its own share of domestic problems with a REAL Debt to GDP ratio north of 200% and its banks needing tens of billions of Euros in new capital
All of these factors lead me to believe that Germany would refuse to be the ultimate backstop for the EU. You could also see Germany preparing the legislation to allow it to walk if it wanted to:
German Chancellor Angela Merkel's Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules.
The resolution reads:
"Should a member [of the euro zone] be unable or unwilling to permanently obey the rules connected to the common currency he will be able to voluntarily--according to the rules of the Lisbon Treaty for leaving the European Union--leave the euro zone without leaving the European Union. He would receive the same status as those member states that do not have the euro."
I believe Germany implemented this legislation for itself... not some other country. And by the look of things, Germany's getting a lot closer to walking.
BBK Thiele: Current ECB Government Bond Buys Violate Treaty
The European Central Bank's government bond buys are a violation of the Maastricht Treaty, Bundesbank board member Carl-Ludwig Thiele said Monday.
Thiele's comments depart form the official Bundesbank line. While the German central bank has warned that larger purchases may be illegal, it has said that current purchases do not violate the prohibition of monetary financing.
Thiele recalled that the decision to buy Greek government bonds had found no support from German ECB Governing Council members. "Germany was over-ruled on the Council," Thiele said.
"These buys were a violation against the prohibition of monetary financing, that is the basic principle that a central bank should not give credit to a state," Thiele said in a speech text provided by the Bundesbank.
Bundesbanker says euro zone must forget idea of QE
Europe must abandon the idea that printing money, or quantitative easing, can be used to address the euro zone debt crisis, Bundesbank board member Carl-Ludwig Thiele said on Monday.
Thiele called for euro zone countries to exercise fiscal discipline and said that boosting the resources of Europe's rescue funds would buy time to address the bloc's debt woes.
"But lasting confidence cannot be bought with money alone," he added in the text of a speech for delivery in Hamburg.
"One idea should be brushed aside once and for all - namely the idea of printing the required money. Because that would threaten the most important foundation for a stable currency: the independence of a price stability orientated central bank."
These are extremely strong statements coming from the Bundesbank. Remember, Merkel is the German political leader, but she doesn't control the purse strings to Germany: the German courts and Bundesbank do. And if they don't support more bailouts, there's nothing Merkel can do.
We see similar warnings coming out of German CEOs:
Linde CEO says Germany should mull euro exit-paper
Germany should consider leaving the euro if efforts to impose fiscal discipline upon indebted euro zone countries fail, the head of industrial gases firm Linde (LING.DE) told German weekly paper Der Spiegel.
"I fear the willingness of crisis countries to reform themselves is abating if, in the end, the European Central Bank steps in," Linde's chief executive Wolfgang Reitzle was quoted as saying.
"If we do not succeed in disciplining crisis countries, Germany needs to exit," said Reitzle who was previously a board member at carmaker BMW (BMWG.DE) and head of Jaguar and Land Rover.
http://in.reuters.com/article/
I firmly believe Germany is already makings moves to prepare for precisely this outcome. No EU member state is going to submit to German authority regarding fiscal policies. Indeed, virtually every EU legislation passed in the post-WWII era was aimed at limiting Germany's power.
And Germany isn't going to simply prop up the EU out of the goodness of its heart. As I mentioned before, Germany has its own domestic issues to deal with. And when push comes to shove, Germany will look after its own interests rather than Greece's or Italy's.
With that in mind I believe it's only a matter of time before Germany walks out of the EU. When this happens the Euro will collapse a minimum of 20-30% and we will see numerous sovereign defaults.
When the smoke clears the EU in its current form will be broken and we will have passed through a Crisis far worse than 2008.
Many people see their portfolios go up in smoke with this. Don't be one of them. The time to prepare your portfolio for the collapse is NOW before it starts.
Labels: Crash, Default, Euro Collapse, Euro crisis
Friday, January 13, 2012
EU Central Banks Are Already Preparing For a Euro Breakup
It is now clear that the Euro will be broken up
in the coming months.
Consider the following statement from Italy's largest bank:
Euro break-up cited as risk in UniCredit prospectus
UniCredit, Italy's largest bank by assets, has cited the
break-up of the euro zone and the collapse of the single
currency as risk factors in the prospectus of its 7.5
billion euro rights issue.
http://www.reuters.com/article/2012/01/05/unicredit-ceo-euro-idUSL6E8C547I20120105
Or how about this one straight from two German lawmakers:
Greek Euro Exit Weighed By German Lawmakers, Seen as Manageable
Lawmakers from Chancellor Angela Merkel's party are
stepping up pressure on Greece as it struggles to meet
the terms of its second bailout, saying that a Greek exit
from the euro region would be manageable.
http://www.businessweek.com/news/2012-01-12/greek-euro-exit-weighed-by-german-lawmakers-seen-as-manageable.html#1_undefined,0_
There are simply stunning comments coming out of
VERY high level sources in Europe. Remember,
as much as Merkel talks about maintaining the Euro,
she needs German lawmakers to back her on that
decision.
And that simply isn't going to happen. The German
courts and German voters simply won't stand for it.
So while Merkel and Sarkozy talk time and again about
solving this situation, the fact remains that moves are
already being made behind the scenes to prepare for
the end of the Euro.
This is not mere conjecture. Numerous EU central
banks have already begun preparing for the possibilty
of printing their old currencies again. Germany is one
of the countries doing this by the way.
In plain terms, the Euro in its current form is finished.
When it breaks up we will see widespread defaults
across the EU. And what follows will make 2008 look
like a joke.
So if you have not already taken steps to prepare for the next
round of Euro Crisis... you need to do so now!
Once the Euro breakup is announced it will be too late
as panicked selling pushes the market into collapse.
Many people will see their portfolios destroyed by this.
Now is the time to make sure you're not one of them.
I can show you how. Indeed, few investors can match
my ability to make profits out of a Crisis.
Labels: Crash, crisis, Debt crisis, Default, Euro finished
Thursday, January 12, 2012
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Monday, January 09, 2012
Nothing Changed
We are now into the second week of 2012 and frankly I can't see any fundamental reason to be bullish about things. The European debt Crisis continues to accelerate, with France's borrowing costs rising dramatically and the yield on Italy's ten-year back above 7% despite massive intervention on the part of the ECB.
Indeed, it's quite telling that the one country that kicked off the entire EU Crisis, Greece, still hasn't gotten its fiscal house in order: there's only 37 billion Euros' worth of aid left from the first bailout of 110 billion Euros... and the EU has yet to hammer out details of the second Greek bailout, worth an additional 150 billion Euros.
If the ECB/ IMF/ Central Banks cannot solve the Greece situation... what hope do they have of tackling the larger issues of Italy and France? Heck, even Germany now sports a Debt to GDP ratio that exceeds Maastricht Treaty requirements and they haven't recapitalized their banks.
As a result of this, shares of even the supposedly "rock solid" German banks have come under stress, breaking down into the gap established during the 2008 Crash.
Aside from Europe, we find signs of a brewing solvency Crisis in Japan, an economic slowdown in China, Iran is playing war games with the Strait of Hormuz, and the US is entering a second recession within the context of a larger Depression.
Against this highly deflationary backdrop, the one primary prop for the markets is hope of more juice/credit from the world Central Banks. However, even that prop is rapidly losing its strength: the gains of the last coordinated Central Bank intervention lasted just a few weeks before the market rolled over again.
Moreover, if the world Central Banks are about to launch another massive wave of liquidity, the commodity space sure isn't picking up on it...
Gold has broken its post-Crash trendline:
While Copper appears to be forming a massive Head and Shoulders top:
Does this mean that the markets are about to plunge straight down? No. But these charts do serve as massive warnings that anyone expecting another round of QE or some other huge monetary stimulus from the Central Banks may be in for a RUDE surprise.
With that in mind, this week's action will go a long ways towards explaining where we're heading from here. Start of the Year buying is over and holiday ebullience is fading fast. Put another way, the market is on very thin ice.
Labels: Crash, crisis, depression, recession
Thursday, January 05, 2012
F.R.E.E. Money for F.R.E.E Members Guaranteed
