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by: Avery Goodman December 22, 2011 Today, about 490 billion euros ($637 billion) worth of ultra-low interest "loans" will be delivered to European banks. This cash has been provided courtesy of the ECB, which denies that it will ever engage in printing money, like the Americans, Britons and Japanese have now done for many years. The "loans" are for a 3-year period. In return for the cash, the ECB accepts various forms of "collateral," which includes the debt of insolvent southern European sovereigns. This is the largest uptake of cash in the history of the European Union, including the cash given out by the ECB after the collapse of Lehman Brothers. This is merely the first of a series of so-called long-term refinancing operations (LTRO) the ECB is going to undertake. These are unlimited tenders of cash. The banks call the shots. Any amount they ask for will be given to them, subject only to the availability of collateral. The next tender is scheduled for February 28, 2012, and many are predicting that it will generate an equal or greater demand for cash among euro-banks. The stated intent is to provide liquidity to banks at a time of great stress for the eurozone. The unstated expectation is that part of the cash will be used to shore up balance sheets, and another to replace or buy more bonds from troubled sovereigns of the eurozone, including, particularly, Italy and Spain. The maturity time for the "loans" is long enough to cover banks until the maturity of many of the sovereign bonds banks might purchase. A bank can now borrow from the ECB at 1% per year for 3 years, invest in a 3-year Italian bond paying 6% plus, and pocket 5% each year in pure profit. That is an enticing proposition. But, the end game is much more lucrative than that. Today's cash delivery is only the first of many 3-year LTRO events that will happen every two months this year. The next one is scheduled for February 28, 2012. The income achieved from buying sovereign debt can, therefore, be leveraged each time a new LTRO takes place, until it reaches an astronomical level of profit. Remember, sovereign debt collateral, at the ECB, is in so-called "category I," and is the subject of a tiny 1.5% haircut. The tiny haircut means that a eurozone bank can post $1 billion in Italian bonds with the ECB on December 21, 2011. On December 22, it can take back $985 million and use that cash to buy more Italian bonds. On February 28, 2012, it will be able to take the newly purchased bonds back to the ECB, take out another 3-year loan, and walk away with $970 million in euros the very next day. It can use that money to buy more Italian bond. Every two months, it will be able to do this again and again, until such time as the ECB decides to stop the LTRO offerings. It is unlikely that the ECB will stop doing LTROs until sovereigns have sold all the bonds they would have liked to sell directly to the ECB if that institution were not prohibited from buying them directly. The LTROs, therefore, are a back-door method of quantitative easing. If Italian bonds continue to pay about 6%, after 1 year of participating in bimonthly LTROs, a euro bank can earn about 30% per year in spread interest. The longer the LTROs continue, the bigger bank earnings will be. Even if LTRO offers end after one year, in three years, an actively participating bank, taking a modest risk, will achieve a 90% return on investment, with the ECB taking all the risk. If the eurozone collapses, at the end of the 3-year period, and bank would likely collapse anyway. But, if it participates to the fullest extent possible, in the back door money printing, its executives will have collected fat bonuschecks from big profits made on sovereign debt. That cash will, by that time, be safely invested in gold, silver, platinum and palladium. Yet, in spite of this reality, many market pundits still claim that European banks won't buy the debt of troubled European sovereigns. This view is naive. While While it is possible that this first LTRO may be used to bolster balance sheets, you can be sure that clever executives at the banks will quickly catch on, and , by February 28, plenty of banks will be taking hundreds of billions of euros for the sole purpose of buying sovereign bonds and earning the spread. But, being "clever" is not really necessary. Central bankers communicate heavily with commercial bankers before making decisions to flood financial markets with hundreds of billions, and, probably, trillions of euros or dollars. If commercial bankers had not already agreed to buy sovereign bonds, this program would not exist. There is no doubt that before providing unlimited LTRO money, q quid pro quo has been reached. Even in the extremely unlikely event that banks do not buy much European sovereign debt, the money market in Europe is going to be very liquid over the next 3 years. The total amount of cash injected by the ECB may total several trillion dollars. That means the eurozone is not going to fall apart for a while. It will remain until at least the end of the 3 years, even though individual nations, like Greece, may end up dropping out or nations like Germany may introduce national currencies toward the end of that period. But, at the very least, the free availability of cash over the next 3 years will make commercial and personal loans, including loans to buy automobiles and capital equipment, very easy to come by. Production of cars, trucks, airplanes, etc. are not going to nosedive, but are likely to increase. As usual, therefore, the Wall Street groupthink is wrong. Europe is going to see significantly better nominal growth levels that the assumptions gave it credit for. It is also going to see a lot of monetary inflation, at least over the next 3 years. Since withdrawal of trillions of dollars in liquidity, 3 years from now, would implode the eurozone, you can be sure that some EMU treaty modifications are going to be made, by that time, to make this soon-to-be bulging money supply permanent. The money supply in Europe is about to exponentially increase. This is money printing on a scale that exceeds that of even the master money printers of America and Britain. The end result, at the least in the medium term, is going to lower yields of European sovereign debt, and increased bond prices. Gold prices will eventually respond directly to monetary liquidity increases, no matter how much central bank price suppression intervention there may be right now. With huge euro injections, alongside significant quantitative easing in the UK and the USA, gold will rise stronger than ever, at least over the next three years. Silver, which responds both to monetary liquidity and to commercial demand, is going to rise even faster, especially as commercial demand increases in Europe, and those that "feed" Europe, like China. Platinum responds to monetary liquidity, commercial demand, and, particularly, auto and truck sales. Of all the precious metals, platinum has been the most deeply abused by Wall Street groupthink, which assumed the complete death of European auto sales. It may, therefore, rise most quickly, once reality catches up, especially considering the 27% drop in South African production in October. Add Comment SP500 versus Gold chart 10/31/2011
 To understand the basics. The peak of the markets purchasing power was in 2000. When gold was $275 oz and the SP500 was at 1587. You'll notice not only have we been in a consistent free fall in purchasing power, but we've actually fallen below the March 2009 lows of the SP500 when its NOMINAL value was 666. The rally we've experienced in the Nominal value from March 2009 to April 2010, the interim high which I discussed on Radio/TV/Print in April 2010 as well as my book which was written in early 2009, has held true and now we are below lows and falling faster and faster. To understand the difference between Nominal and inflation-adjusted, Nominal is just the pure number. For instance the SP500 was 1580 in October 2007 and today it is around 1300. In nominal terms it as fallen about 20%. Looking at the chart you'll see that in inflation-adjusted terms we've already fallen about 65% in purchasing power since then and there is no end in sight. Not understanding that you need to keep up with inflation and not nominal terms is vital for long term financial stability in ones retirement. $5000 per month today might seem like a great retirement pension, but if it does not grow to $10,000 per month over the next 10 years, you'll have to adjust your standard of living down. Welcome to the new reality of living with a Federal Reserve which feels massive inflation in an environment of stagnant wages is a good solution. Actually they really don't care, their only concern is dealing with the massive debts of governments around the world and the best way to deal with it is to inflate the debt away. If I owe $15Trillion like the US and can pay it back with a role of toilet paper A few quick points of the Euro-zone deal to put into perspective how futile the deal is. First: Only private sector banks are required to share the 50% hair-cut. No public sector will have to accept the same terms and thus the total haircut is only 20% of the total Greek debt outstanding. Second: Private banks will voluntarily have to surrender their bonds and get the 50% reduction. By making this voluntary, this does not cause a credit default, and thus the world stock markets have factored in this favorable outcome. The big problem is all the private banks take out Credit Default Swaps (CDS) on their debt, which is basically insurance in case Greece defaults, and the payments to them for a true default will be higher than the 50% haircut. So they will NOT tender their bonds to get the 50% payment and will wait for the true default. Again, NOTHING HAS BEEN SOLVED. Only the can keeps getting bigger and bigger and our boot used to kick it is getting tired. Until the next version of Quantitative Easing is announced, the markets will be on a roller coaster to hell. Sadely this roller coaster always ends up at the same place. A reset to lows and a re-birth. I believe that level will be around 3500 on the DOW/Gold adjusted chart. Currently we are at 7000, which implies a 50% further reduction from present values. That would be DOW 6000. If you haven't read about the DOW/Gold adjusted chart, google it. This puts into perspective just how much we have lost in the last 10 years to inflation and loss of purchasing power.... As of Friday, 10-2 Take Profits NowBy Jeff Clark Thursday, September 1, 2011 If you took my advice three weeks ago to "buy stocks now," you've had a good month. Stocks are up about 8% since then, and every market sector participated in the rally. Now it's time to cash out... at least for a little while. We still have the positive influence of the presidential cycle. But the S&P 500 closed yesterday below its 20-month exponential moving average, which indicates a bear market. So we have conflicting indicators. When in doubt, it's a good idea to take profits. Even if you think stock prices will be higher by the end of the year, there's good reason to be cautious for the next couple weeks. Let me explain... For all intents and purposes, the stock market crashed in August. The S&P 500 collapsed 18% in just five trading days. Even though stocks have bounced back off the lows, the market is still in need of a retest to complete the typical "crash" pattern. Stock market crashes unfold in three distinct stages: panic, relief, and a tortuous retest of the lows. Take the action in 1987 as an example...   So far the "crash" pattern is playing out according to plan. All that remains is the retest. If it unfolds like 1987 did, the next few weeks could be rough. After all, September tends to lean bearish. It's been a fun three weeks, but go ahead and take some profits off the table here. We should have a shot at buying stocks again at lower prices a few weeks from now. This morning the Dow was up a modestly until economic data came in. Housing numbers slumped for the third month in a row and manufacturing index dropped expectantly. Both indicating a continued real erosion of our economy as we slide further into this depression. How does the stock market react to the bad news. A giant jump up of course. Taking on over 100 points to the upside. In this bizarro world, bad news is good news. Why? Because on Friday Ben Bernanke is talking in Jackson Hole and the worse the news is, the better the odds he will come to the rescue and print more money. A sad reality we live in. Fundamentals mean nothing. This country started as a manufacturing based economy, went to a service based economy, and has fallen to nothing more than a printing press economy. We live and die by the printing press of the federal reserve. S&P Board Fires CEO For Telling The Truth, To Be Replaced With COO Of Citibank Submitted by Tyler Durden on 08/22/2011 21:20 -0400 Following years of pandering to client demands, and assigning trillions of dollars in fixed income securities with whatever rating money bought (among other things, a factor to the credit bubble and its subsequent implosion) S&P finally tried to do the right thing and tell the truth. However in this case it picked if not the worst, then certainly the most hypocriticial credit in the world to expose - the US itself. Sure enough two weeks after the downgrade, someone made the phone call and the CEO Deven Sharma is no more. As for the kick square in the gonads: Sherma will be replaced with the COO of...you know it... the bank which demanded tens of billions in secret Fed bailout loans itself, Citibank, and whose existence is inextricably tied to America not seeing any more downgrades ever again. As the FT reports, "The McGraw-Hill board made the decision to replace Mr Sharma at a meeting on Monday, where it also discussed an ongoing strategic review." Alas, this is nothing but a case study of modern corporate reality in America: if you are not with the status quo, you are against it, and you are promptly booted out of it: anyone who does not share the visions of one glorious future built on ponzi schemes, houses of cards, and games of three card monte, will be promptly suicided, either physically or professionally. We expect that this flagrant example of how the powers that be will deal with any dissenters will instill the fear of god in anyone at either Moodys (or the French sycphants from Fitch) and nobody will ever again menton the words "US" and "downgrade" in the same sentence. From the FT: Deven Sharma is stepping down as president of Standard & Poor’s only weeks after the rating agency issued an unprecedented downgrade of the credit of the US, according to people familiar with the matter. Mr Sharma will remain as an adviser to S&P’s owner, McGraw-Hill, for four months and leave the company at the end of the year, they said. Mr Sharma will be replaced as S&P president by Douglas Peterson, chief operating officer of Citibank, the banking unit of Citigroup, they said. As for the official story: People close to the company said the search for Mr Sharma’s replacement has been going on for six months, and was triggered by the split of its data, pricing and analytics business from its ratings business. The creation of that new group, McGraw-Hill Financial, reduced the scope of Mr Sharma’s oversight, they said. So let us get this straight: in America when you dare to tell the truth, your career is over, while if you are a corrupt, lying, incompetent tax evader you not only get to be Treasury Secretary but likely will be on for life as long as you do the one duty you are entrusted with: pander to the interests of the Too Big To Fail financial institutions We should be speechless but at this point we are well beyond the point of even caring. The only question left in this entire farce is how long before S&P issues the following upgrade of the US: "Great service, AAA+++ rating, immediate payment, would do business again!!!" From Bloomberg UK: This year’s tumble in U.S. stocks mirrors the Japanese selloff that began 11 years ago, an indication to hedge fund TTN AG that American equities may have further to fall. The CHART OF THE DAY shows the pattern of gains and losses in the MSCI USA Index has followed the dollar-denominated MSCI Japan Index with an 11-year lag since 1990. While the U.S. gauge has retreated about 15 percent from this year’s high in April, the Japanese measure sank more than 50 percent during the slide that started in April 2000, data compiled by Bloomberg show. “We may see a Japan 2.0 scenario,” Trung-Tin Nguyen, founder of Zurich-based TTN, said in an interview. “If U.S. markets continue to fall we might drift into recession, which led to deflation in Japan.” Like Japan a decade ago, the U.S. is grappling with an expanding debt burden and slower economic growth. Standard & Poor’s cut America’s top AAA credit rating for the first time last week, while the Federal Reserve pledged on Aug. 9 to keep interest rates at a record low through at least mid-2013 to counter a weaker-than-anticipated economic recovery. There is a bounce in here, but my best guess is that there is more downside work to come.  S&P 500 vs High Yield Credit Spreads FRIDAY, AUGUST 12, 2011 AT 10:04AM Whenever the equity market is having big moves to the upside or downside, it often helps to compare the move to trends in the credit markets, and more specifically high yield credit spreads. When the equity market is rising, we should see spreads on high yield bonds contract, and vice versa when the equity market is declining. With this in mind, the recent widening of spreads in the high yield market is a potential red flag. According to Merrill Lynch indices, high yield spreads widened out to 739 bps yesterday and took out the highs from last Summer (727 bps). At the same time, the S&P 500 is still 13% above its lows from last Summer.  Federal Reserve printing money faster than ever. Don't believe Quantitative Easing has stopped! 08/11/2011
This mornings 30 year treasury auction was a train wreak. Weakest purchases by foreign buyers EVER! There are 3 groups that buy treasury's at the auctions. The direct Bidders, the indirect bidders and finally the FED. This mornings statistics tell the whole story: Direct Bidders (US Banks, and US parties) : 19.5% Indirect Bidders (Foreign Central Banks, Foreign banks, ....) : 11.5% Leaving a whopping 69% bought by the buyer of last resort. The Federal Reserve. Can you say Weirmer Republic here we come....... Dave Ramsey quote: " If the US government was a family, they would be making $58,000 a year, they spend $75,000 a year and are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget and debt, reduced to a level that we can understand. | FREE SUBSCRIPTION!Receive Emailed Articles as they are Posted. Click Below on RSS Feed!Jason's Thoughts!My goal is to use this format to bring important and timely ideas to the surface on recent events which I feel will affect all of us financially. ArchivesAugust 2011 Categories |
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