Monday, November 25, 2013

Zimbabwe Ben, Janet "von Havenstein" Yellen And The Taper That Will Never Happen

[T]he Federal Reserve’s long and large scale purchases have significantly lowered long-term Treasury yields.  - Ben Shalom Bernanke, Keynote Speech at the 2012 Jackson Hole Federal Reserve Conference LINK
For those of you who are unaware, Rudolph von Havenstein was head of the German Central Bank during the infamous Weimar hyperinflation/currency collapse period (1921 - 1923).  As most of you know, every German who had their wealth denominated in German marks on the night of November 13, 1923 woke up the next day to discover that their paper wealth was worthless.  Gold, for all intents and purposes, went to infinity as measured in the German mark (gold began the Weimar Republic period at 170 marks and peaked at 87 trillion marks).  

I mention this as background because, despite the Fed's lip service to the contrary about reducing QE (the "taper"), the Fed has no choice to not only continue printing money, but will soon be forced to increase its rate of printing.  Make no mistake, this is going to get crazy and they will probably eventually start buying assets other than Treasuries and mortgages, such as municipal bonds, pension liabilities and equities. 

I wrote an article for Seeking Alpha that seems to be getting a lot of attention around the internet on this subject:
Since Bernanke first uttered the word "taper" in mid-May, the financial media circus cycle of "they'll taper this time around" has been repeating itself before every FOMC meeting and after the subsequent release of the FOMC meeting minutes. And yet, the Fed continues to defer reducing its QE policy after every meeting despite constant overtures to the contrary. The truth is that reducing the level of QE right now would likely cause a repeat of the 2008 near-collapse of the financial system, hurling the economy into a serious depression.
 You can read the entire piece here:  Don't Fall For The Taper Talk - Again

The first indication that I may be on to something here is the price pattern of the U.S. dollar.  Despite all the dollar bulls permeating the airwaves of financial media with their mindless drivel, this latest manipulated dead-cat bounce in the dollar appears to have run out steam pretty quickly:

(click on graph to enlarge)

As you can see from this chart, the USDX was unable to even bounce back up to its 200 day moving average in this latest dead-cat bounce.  It appears ready to resume the nasty decline that began in July, after the Fed deferred tapering QE despite Zimbabwe Ben's threat to taper in May.   In other words, the smart money (the Chinese, for instance) understands what's happening in this country and it (the smart money) is using every bounce in the dollar to dump (not just the Chinese, by the way). 

For those who are unaware, Janet Yellen gave a policy speech in which she stated that negative interest rates may be necessary to stimulate employment.  Just like Zimbabwe Ben's infamous "helicopter" speech in 2002, Yellen's speech offers insight into how she thinks about the implementation of monetary policy as a means of attempting to manipulate the economy.  The USDX knows this.  Most people who get their market news from CNBC or Bloomberg do not.

We are going to see higher rates that will kill the economy once and for all unless the Fed increases its bond buying program.  The market is telling us that, not me.  It's gotten so silly in terms of the perma-bull analysis - or what passes for analysis in this day and age - that I read an article over the weekend in which the money manager argued that higher interest rates would be bullish for the economy. Sorry pal, the only thing higher rates will signal is that the Fed is printing even more money in a desperate attempt to keep the bond and stock markets from collapsing.  This may well drive the Dow higher, but please review the history of the Weimar Republic leading up to and including November 14, 1923 if you want to see how this ends.  Here, I'll make it easy for you:  LINK

What is even more frightening, especially given the degree of ramped up U.S. militarism, and the role played by the NSA in this, is to contemplate what happened in Germany after the Weimar Government collapsed...wouldn't it be diabolically ironic - in fact, tragically amusing - if Ben Shalom Bernanke and his successor, Janet Yellen, were the ones who ushered the U.S. into a similar type of Government that succeeded Germany's Weimar period...


  1. I read a piece by David Stockman this morning. Stockman thinks that at some point the fed will pull back on QE and that the Bond market will plummet. His outlook is for massive deflation of all asset classes. Stockman stated that once assets have fallen including gold, the markets will set new valuations and gold will rise quickly in value. The rise in value will mainly be due to mistrust in anything controlled by all Governments.

    1. Could be. No one can predict the path everything will take. We know the end point for gold just not how it zig-zags in getting there. Even Stockman doesn't know. I disagree with him on QE pullback. I think my track record since 2000 speaks for itself. He doesn't have a track record going back that far because he was part of the Establishment until the last few years.

    2. No disrespect Dave, Just thought I would post another angle to the puzzle. You do have an excellent track record but, as you stated no one really knows how the chips will fall. I do know a lot of folks won't like how it ends.

    3. No worries, did not feel diss'd. lol.

      It just irritates me that guys like Stockman have finally "turned the worm" on the truth and now they're getting promoted like they're some kind of oracle. Stockman isn't a market guy. He was always a banker then a politician. He's probably saying gold is going lower because Goldman has that forecast.

      They may well take gold lower. But the only ones who benefit will be the Chinese plus anyone else who has the foresight to buy physical.

    4. FWIW my opinion is the Fed will print. This debt will NEVER be paid back in real terms. There may well be some kind of short-lived QE pullback but it won't last. The fed views deflation as the enemy. The irony is I think Stockman is right and we will get even worse deflation (including paper gold). Paper gold is ....well.... paper. When deflation truly begins in earnest and dollars start chasing every tangible (real) asset the fed will literally print (remember Ben's helicopters). This is hyperinflation. It will be something to behold.

  2. "wouldn't it be diabolically ironic - in fact, tragically amusing - if Ben Shalom Bernanke and his successor, Janet Yellen, were the ones who ushered the U.S. into a similar type of Government that succeeded Germany's Weimar period"

    MAKE NO MISTAKE ABOUT IT----THIS IS THE DESIRED OUTCOME. Yellon/Bernanke and the rest of the fascists at the Federal Reserve and their masters the offshore international bank cartel are doing EXACTLY what you speak of.

    I am amazed that everyone seems to be "delusional" and honestly believes that what we are witnessing is incompetence---IT IS NOT----these thugs know exactly what they are doing---systemically destroying the free market and ushering in a new era of world dictatorship that will make previous dictatorships and regimes like hitler/stalin/etc pale in comparison.

    Again, MAKE NO MISTAKE---these people are not incompetent---they are PURE EVIL!

  3. Why not invest in a S&P index fund now and make some money if she is just going to print more money and expand the bubble? Ride the bubble for a year or two, male some quick cash, then sell of your stocks and buy gold or silver. There is the chance the bubble will pop in that time, but if you already have a large physical holding of metal what does it matter, your hedge is in place. It looks like a win win to me. Eventually gold will account for massive expansion in our monetary base, and by buying some stocks now you can make some easy money and buyy more gold later.

  4. What Is Goldman Sachs Doing With Venezuela's Gold?

    Do you know what this means? I do not (here's El Nacional's version, in Spanish but not significantly clearer), but it would seem to be a margin loan against the gold; i.e. something like:

    Venezuela is borrowing about $1.6 billion from Goldman for seven years.
    Venezuela is collateralizing that borrowing with gold worth $1.8 billion at today's prices (i.e. it's 90 percent of the value of the gold; that's the 10 percent haircut), and it's posting that collateral somewhere Goldman can get it (the BoE).
    The collateral will be subject to margin calls as the price of gold increases or decreases.5
    Venezuela is paying about 8 percent a year for this loan.6

    So is that a good deal for Venezuela? It depends how you count but it's hard to imagine the answer is yes. I mean: Why would Goldman do it if the answer was yes? There are some other arguments below but that is surely the main one.7

    Because, if true, this is not the most pristine deal you ever will see! (Goldman declined to comment.) I mean, one, Venezuela -- it inspires people to feel feelings, plus you might have some weird dynamics around actually getting them to post margin.8 Two, complex derivatives etc. -- more feelings, though despite the word "swap" here, my best guess about what is going on here is that it is really just a secured loan and so barely a derivative at all.

    Three, ask yourself, what is the purpose of this trade? I won't tell you the answer, because I don't know, but it sure seems to be for Venezuela to get some money for its gold without "selling" it. Which is the sort of sleight of hand that, as a bank, in 2013, you might want to avoid. Unless, again, it pays well.

  5. New York Fed’s Strange New Role: Big Bank Equity Analyst

    By Pam Martens: November 25, 2013

    For more than two decades, financial columnist John Crudele has been hypothesizing on whether the Federal Reserve has its fingers in the stock market – directly or indirectly. Tampering with stocks is off limits to the Federal Reserve, as far as the public is aware. Its stated function is to serve as the central bank of the United States, focusing on achieving monetary policy through its open market activities in the bond markets and foreign exchange area.

    But the New York Fed itself is helping to fuel suspicions about what’s going on within its cloistered walls at 33 Liberty Street in lower Manhattan. Of the 12 regional Federal Reserve Banks, the New York Fed is the only institution with a trading floor and highly sophisticated trading platforms. But despite multiple requests, the New York Fed will not provide a photo of the full trading area. Photos of its gold vault and currency vault are on line, but photos of the trading area is off limits, for unspecified reasons.

    The resume of Kathleen Margaret (Katie) Kolchin is also noteworthy. On Saturday, September 17, 2011, Kolchin spoke at the annual Lehigh University Financial Services Forum. According to the handout given to participants, she works for the Federal Reserve Bank of New York, “performing equity research on the large cap US and European banks. Throughout her career as an Equity Research Analyst, Katie has covered various sectors, including Global Consumer Products, Global Real Estate, and Metals and Mining, at UBS Securities and also at a boutique investment bank.”

    Even more curious is the resume Kolchin has posted at LinkedIn. The resume states that the New York Fed has an “internal equity research team,” of which she is the Senior Analyst. The team’s coverage includes Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, UBS, and Wells Fargo.

    Kolchin more curiously states that she has “Developed a sell-side style research platform, including work product branding, distribution strategy, and internal client marketing presentations…” Kolchin adds that she uses her “capital markets experience and contacts” to garner insights into the market’s reaction to “stock and bond prices.”

    “Branding”? “Distribution”? “Marketing”? Stock prices? What’s going on here. There are famous, long-tenured bank analysts all over Wall Street. It’s their job to deliver unbiased reports on the prospects for the stock performance (equity) of the big banks so that investors can make appropriate buy, sell and hold decisions. How is this the job of the New York Fed?

    Painting the tape is a new art form.

  6. michael schumacherMonday, 25 November, 2013

    In february the printer will be on overload.......
    They jaw-bone the possibility of a taper so that the next fed goon is installed under the guise of being responsible. They can't stop......have not stopped since Oct 2002 in some way,shape,form

    Then the shackles are taken off...

    wait until you see what they do to the COMEX at the same time. You've all been warned......

  7. Wall Street May Take Derivatives Regulator to Court

    Wall Street banks reeling from a flurry of activity by departing U.S. Commodity Futures Trading Commission Chairman Gary Gensler are considering taking the agency to court.

    Scalia Consulted

    This time, the banks have decided they have little recourse except to sue the agency for not following the proper procedures for issuing regulations, said the people briefed. The Securities Industry and Financial Markets Association, Wall Street’s main lobbying group, recently set up a conference call that included the firms’ general counsels and attorney Eugene Scalia, a Washington lawyer who has filed several cases seeking to overturn Dodd-Frank rules.

    The International Swaps and Derivatives Association, another Wall Street-dominated trade group, has also consulted with law firm Mayer Brown about the legality of Gensler’s maneuvers, one of the people said.

    A lawsuit could be filed as early as this week, the person said.

    Scalia and ISDA didn’t respond to requests for comment. Liz Pierce, a Sifma spokeswoman, declined to comment.

    Rob Nichols, the president of the Financial Services Forum in Washington, which represents the chief executives of the major Wall Street firms, said that his members want to make sure that regulators in the U.S. and Europe are “rowing in the same direction” so the global swaps market isn’t disrupted. Gensler’s guidance on foreign trading is “counter-productive,” he added.
    ‘Raising Concerns’

  8. Here's why Wall Street has a hard time being ethical
    A new report finds 53% of financial services executives say that adhering to ethical standards inhibits career progression at their firm. A former Wall Street trader describes why

    My first year on Wall Street, 1993, I was paid 14 times more than I earned the prior year and three times more than my father's best year. For that money, I helped my company create financial products that were disguised to look simple, but which required complex math to properly understand. That first year I was roundly applauded by my bosses, who told me I was clever, and to my surprise they gave me $20,000 bonus beyond my salary.

    The products were sold to many investors, many who didn’t fully understand what they were buying, most of them what we called “clueless Japanese.” The profits to my company were huge – hundreds of millions of dollars huge. The main product that made my firm great money for close to five years was was called, in typically dense finance jargon, a YIF, or a Yield Indexed Forward.

    Eventually, investors got wise, realizing what they had bought was complex, loaded with hidden leverage, and became most dangerous during moments of distress.

    I never did meet the buyers; that was someone else's job. I stayed behind the spreadsheets. My job was to try to extract as much value as possible through math and clever trading. Japan would send us faxes of documents from our competitors. Many were selling far weirder products and doing it in far larger volume than we were. The conversation with our Japanese customers would end with them urging us on: “We can’t fall behind.”

    When I did ask, rather naively, if this was all kosher, I would be assured multiple times that multiple lawyers and multiple managers had approved the sales.

    After a few years on Wall Street it was clear to me: you could make money by gaming anyone and everything. The more clever you were, the more ingenious your ability to exploit a flaw in a law or regulation, the more lauded and celebrated you became.

    Nobody seemed to be getting called out. No move was too audacious. It was like driving past the speed limit at 79 MPH, and watching others pass by at 100, or 110, and never seeing anyone pulled over.

  9. Classic match last night between your Broncos and my Patriots!! Wild game, teams should see each other again in January to play for keeps.

    1. What a crazy game. Definitely was entertaining. I had a gut feeling at halftime that game was far from over...

  10. Let them taper! The deflation of asset prices will be quite entertaining indeed. We already know how astute these fools are at seeing asset bubbles staring them right in the face.

  11. Correlates to what you have been saying as of late with Housing..

    Insight: A new wave of U.S. mortgage trouble threatens

  12. This comment has been removed by the author.

    1. LOL. You watch too much CNBC. History and Larry Summers tell me I'm right. Not only that, several Fed officials have already said there's plenty of room for more asset purchases. Finally, you didn't read my seeking alpha article, obviously, because you missed the primary reason for why they are printing money. I said "speculate" on SA but that's because they won't publish if I claim fact and don't have data to back it up. But I know from insiders that the banks are insolvent if they stop printing.

      Please read my Seeking Alpha article carefully.

    2. I will be writing you back in 2014. Wait till you see the trick Janet Yellen pulls.

    3. If the Fed pulls the taper trigger they not only blow their own head off, but the bullet will ricochet and go through the heart of Wall Street and hit Uncle Sam in his rear end.
      It would be suicide homicide and cause brain damage all from one shot.

  13. The Government's Secret Plan to Shut Off Cellphones and the Internet, Explained
    "I find it hard to imagine why an internet kill switch would ever be a good idea, short of some science fiction scenario."

    What are the constitutional problems? Civil liberties advocates argue that kill switches violate the First Amendment and pose a problem because they aren't subject to rigorous judicial and congressional oversight. "There is no court in the loop at all, at any stage in the SOP 303 process," according to the Center for Democracy and Technology. "The Executive Branch, untethered by the checks and balances of court oversight, clear instruction from Congress, or transparency to the public, is free to act as it will and in secret." David Jacobs of EPIC says, "Cutting off communications imposes a prior restraint on speech, so the First Amendment imposes the strictest of limitations…We don't know how DHS thinks [the kill switch] is consistent with the First Amendment." He adds, "Such a policy, unbounded by clear rules and oversight, just invites abuse."

    What don't we know about the kill switch plan? A lot. We don't know the "series of questions" that help DHS determine whether it should activate a kill switch, how DHS will go about implementing the kill switch, how long a shutdown will last, and what the oversight protocols are. For example, Jacobs from EPIC says that, it appears that "DHS wouldn't have to call up the president to implement this, he would be involved in the same indirect way that he is with all kinds of executive branch actions." This information was requested in the FOIA lawsuit filed by (EPIC) and could be revealed as early as December. "Hopefully exposure of such a lunatic idea will allow the public to beat some common sense into these agencies," says Feld.

  14. Speed Traders Meet Nightmare on Elm Street With Nanex

    Charts of trading produced by Hunsader’s eight-person firm have captivated everyone from regulators to art gallery owners. One stunt involved a computerized piano piece mimicking quotes for an exchange-traded fund. He infuriates some traders, who say Nanex draws unwarranted conclusions and spreads conspiracy theories.

    To Hunsader, the images created from market feeds are evidence of high-frequency trading firms exploiting market rules to turn a profit in a lawless environment. Though others in the industry see his reports and charts as propaganda, Nanex’s interpretations are helping to drive the public debate about the fundamental fairness of the modern stock market.

    “You ever see ‘Lord of the Flies’ or read that book?” he said, using the William Golding novel about boys stranded on an uninhabited island as a metaphor for the stock market. “When you don’t have a parent around, things fall apart.”
    ‘Ticker Plant’

    As the 51-year-old Hunsader sees it, that’s especially true for a market capable of spewing out quotes to buy and sell stocks at rates as fast as 2 million per second, compared with about 1,000 in the 1990s. The options market can produce quotes at a rate of more than 10 million per second, according to Nanex, whose business is to process the data and distribute it to users in what’s known as a “ticker plant.”

    Hunsader’s firm detected what it said was suspicious trading before the government’s jobs report on Oct. 22. On Oct. 16, Nanex identified a buy order worth more than $400 million shortly before the open of European exchanges. The orders for E-mini S&P 500 futures were canceled “just before selling began in earnest,” Nanex said.

    Nanex labeled the report “Panthers on the Loose?,” arguing the trades resembled a case that caused the Commodity Futures Trading Commission to order Panther Energy Trading LLC to pay $2.8 million in fines and forfeited trading profits. The firm was accused of “spoofing,” or using an algorithm to illegally place and quickly cancel bids and offers in futures contracts in order to create the false impression of demand.

  15. Absolutely Astonishing Developments In The War On Gold

    Kaye: “The most active series, currently, in the paper gold market is the option (contract) in December of 2015 at a $3,000 strike (price). It’s been extremely active in the last two trading days. You have to ask yourself, ‘Why would anyone in their right mind, with gold languishing around the $1,250 level, have any interest at all in an option series 2-years out, struck at $3,000, (which is) well in excess of the current price?’

  16. Max interviews Alasdair Macleod of about 400 ounce London .995 gold bars being sent to Switzerland from Arab holders and melted down to 1 kilo .9999 bars, thus moving gold from the London standard, to the new better Chinese standard – suggesting we may be entering a post-petrodollar world. In which case, petrodollars could be flowing back into NY in pure dollar form to cause high inflation. And, finally, Max and Alasdair suggest that unless you rig gold markets, your forex and libor rigging won’t work.

  17. $39,700 Bottle of Wine Sets Record

    A case of 1978 Romanée-Conti Grand Cru sold for $476,280 on Saturday, setting a record for Romanée-Conti and making it one of the most expensive cases ever sold at auction. That works out to about $39,700 per bottle or about $4,900 per glass.

  18. The fed is doing a wonderful job,the rich are getting RICHER! This chart is PROOF.
    You tell me what is going so good in America to Precipitate this kind of stock market chart?
    Answer: Hot Air!

  19. This comment has been removed by the author.

    1. Silly?..............

      $39,700 Bottle of Wine Sets Record
      A case of 1978 Romanée-Conti Grand Cru sold for $476,280 on Saturday, setting a record for Romanée-Conti and making it one of the most expensive cases ever sold at auction. That works out to about $39,700 per bottle or about $4,900 per glass.

      Bitcoin is Heading Toward a New High — and It Could Go to $1 Million

      70% Of Brooklyn Home Sales Are To Hedge Funds, Investors And International Buyers

      In the US, since the beginning of the 1980s the Bureau of Labor Statistics has “adjusted” the methodology of its inflation model 24 times. Along with the hedonic approach, the geometric weighting, and the adjustment for intervention, the surrogate approach is dubious as well. For example, if steak becomes more expensive, statisticians assume that instead people will eat hamburgers. The following chart shows the divergence of the new, official rate of inflation and the former method that was still in use in the 1980s. This also explains why the real income of the households has been stagnating for years.

      New Boom in Subprime Loans, for Smaller Businesses
      The type of leveraged loans that Learfield took out are known as covenant-lite, financial lingo for loans that lack the tripwires that could alert investors to any potential financial troubles at the company that could affect repayment. More than half of all leveraged loans issued this year have been the so-called cov-lite types, double the level seen in 2007 on the eve of the credit crash.

      Dell said in September that it would use a $9.1 billion cov-lite loan to help finance the $24.9 billion buyout by its founder, Michael Dell, and the private equity firm Silver Lake.

      the economy is a debt party.....................covered up by doctored numbers on inflation.

  20. A taper that will never happen? Never say never, Dave. They just might be crazy enough to do it, and then watch the unintended consequences really hit the fan. Hubris, thy name is the FED.

  21. Dave,

    Looking at the H.4.1 report this week it's clear that there is no intention of tapering anytime soon. The Fed bought more than $15 billion in UST's this past week, the single highest weekly amount since QEIII/IV started back in December. When you couple that with the action in the 10 year bond market you can see quite clearly how and why the Fed cannot taper its asset purchases.

    Moreover, any time the U.S. attempts to project force in Central Asia, the Fed is forced to respond by buying more to hold the UST market in check.

    Great stuff as always.

    1. Yes - exactly what I've been saying since Ben first uttered the word "taper."

      The reason they are doing "QE" is because otherwise the banks are insolvent.

      Thanks for the feedback!