Global Stock Market Crash Imminent

If you’re reading this because stock markets have crashed and the world’s economy is collapsing – it’s time for you to learn the truth.

What is happening to our economy – and to us – is not random chance and it’s not because of the many reasons you are being told on your television and radio.

Mainstream media and world (political & financial) leaders are telling you many reasons why the global economy is crashing – and none of them are true.

Hopefully, you are now asking yourself a very important question.  

What is the truth?

The truth is that the global economy has been built on a foundation of sand – and there are motives at work here – motives that do not benefit you or me. 

Yes – there are many people who can describe the many pieces of the global economy – but there are very few people who truly understand how it works, why it was created and understand that it has always been unsustainable.

You and I live in a system that has kept the world in financial bondage and is destined to fail – and fail it will.  This isn’t opinion – it’s math.  Some very simple math will tell you that the global debt based monetary system will fail. 

This is leading you to some obvious questions.

If some relatively simple math will show that the world’s economy has always been destined to fail – why wasn’t this prevented?  Why haven’t we been warned?  Who has let this happen?  Who is behind this? Why are government and financial leaders leading us astray?  More importantly - why are they lying to us?

Great questions – and you will not like the answers.

In fact, you will find many answers on this blog that explain what is happening in our world. The answers will challenge your way of thinking.

Many of the things that you have been told your entire life about religion (including Christianity), about the Lord’s prophecies, about the global financial system and about who governs the world – are simply not true. 

There is only one path to truth in this world – and I will explain it all here.

The collapse of the global economy is just one piece of the puzzle. 

This mystery cannot be solved by only searching for things or solutions in this world.

I’m sure there will be many who agree with my analysis of the global economy – but they will not want to bring God into the equation. They will see my references to Him and His prophecies – and will not want to believe what I’m telling you.

Let me be clear from the beginning.

He is the reason I understand many of His prophecies.

He is the reason I have created this blog – to give to you. 

He is the reason I do not fear the people behind this economic collapse.

He is the Alpha and the Omega – the beginning and the end – and He has told us what is coming.  We haven’t been listening.

Much of what is happening can be summed up by two important facts:

1.      We – as a nation – have walked away from God and His ways

2.      We have vastly underestimated our spiritual enemy

Most Christian churches do not understand what is happening because they believe incorrect interpretations of Bible prophecy.

Our enemy has created a wondrous fantasy out of the Lord’s prophecies – and most of the Christian world has taken the bait – hook, line and sinker.

A classic case of bait and switch – on a global scale.

Don’t believe it?  You will.

They will try to take everything from us – until we have nothing left.

Who are ‘they’ you ask?

While we fumble around trying to understand what is happening – the beasts of Revelation chapter 13 are gaining control of the world.  They have controlled the world’s financial system for hundreds of years and have slowly infiltrated the world’s governments and the world’s religions.

This coming stock market/economic collapse will be the ‘event’ they created to push the world to accept a new global financial system and world government.  This world government is often referred to as the ‘New World Order’.  Call it what you will – it’s all about control of the world’s population by an ‘elite’ few.

The final push for world government began with the events of September 11, 2001 – and there have been many people working in the shadows over the past 10 years to bring about what we are experiencing today.

The devil’s hands have indeed been busy.  Over the past 5 years I have watched him work to move his plans forward - and deceive the world. In case you are wondering – he doesn’t fight fair.  Never has – never will. 

For those of you involved with the New World Order – those of you who call yourselves the ‘elite’ - those of you who think you are ‘enlightened’, but swear allegiance to God’s adversary – those of you who walk in darkness and think that you have hidden your plans from God and His people - you are mere puppets on the grand stage.  You are the blind leading the blind. I would advise you to get free of this abomination and make your peace with God before it’s too late.  

Pay attention to what I’m telling you. Though you don’t believe me – I have been given a message for you.  The day draws near when you will be cast into the place prepared for those who follow God’s enemy. You stand against the Almighty – do you expect to win this battle?  I have seen your end. You’ve already lost.  You will gain authority in this fallen world for a short time – and then it will end – forever. Search for the truth now – or face the consequences for all eternity.

As for everyone else – I will say again – it’s time for you to learn the truth about the world in which you live.  A world of lies and deception - deception on a level that is almost unbelievable.

If you feel that you’ve got God and this world all figured out and you don’t want your beliefs challenged – then there is no need for you to proceed.

If you are squarely focused on yourself and what you can get in this world – and you don’t feel the need to change – then there is no need for you to proceed.

If, however, you feel lost and want to believe that there must be something more for us – then you should continue.

If you feel that there is something seriously wrong with the world and you feel that if there really is a God that loves us – He would certainly show us the way of truth – then you should continue.

If you consider yourself a Christian and you need some guidance on what is happening and why from a Biblical perspective – you should continue.

If you are simply tired of the lies and are ready for some hard truth – then you should continue.

One of the many truths you will learn is that you have been asleep – and it’s time for all of us to wake up.

You will learn – as I have learned – that the Lord will show you the door – it’s up to you to walk through it.

In the near future, when the world (Mainstream media, Obama, Bernanke, Geithner, Greenspan, Bush, etc) tells you a million lies why global stock markets are crashing and the global economy is collapsing – ask yourself how I and some other informed people knew it was coming.

If you’ve seen ‘The Matrix’ – then this is your opportunity to take the red pill and see just how far down the rabbit hole this thing goes – or take the blue pill – walk away – and believe whatever you want to believe.

Remember – all I’m offering is the truth. Nothing more.

If you want to begin to learn the truth about the world’s economic system and the motives behind it – the journey begins here: 

http://endtimediscussions.blogspot.com/2006/09/our-monetary-system.html

http://endtimediscussions.blogspot.com/2006/09/our-monetary-system-part-ii-market.html

jg – February 6, 2011

 

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How long can the party in stocks last?

Wednesday, February 2, 2011, 11:23 am, by cmartenson

http://www.chrismartenson.com/blog/how-long-can-party-in-stocks-last/52040

by Chris Martenson

The headlines are screaming at the top of every financial media outlet tonight:  The Dow Closes Above 12,000 For the First Time in Two Years!

What's going on here?  Is the recovery well and truly underway?   And, if it is, why is the Fed dropping hints again that "QE3 may get discussed" at future Fed meetings, as Kansas City Fed President Thomas Hoenig said on Feb 1st?

Given the raft of good economic news lately, one might be forgiven for wondering what the Fed has in mind here.  If everything is so economically rosy, why are they already dropping trial balloons about more Quantitative Easing?  What are they seeing that we are not seeing, that justifies more than $100 billion in thin air money each month, and why won't they just tell us what it is? 

Here's how ChrisMartenson.com member dbworld put it earlier today:

I thought I heard CNBC state the other day that there was seen an inflow into the US Equities market which hasn't been seen in a while. I didn't catch the details, but I'm hoping that Chris has a read on this and an explanation on why the US stock market is so strong.

While it's true that retail investors have only very recently begun moving more money into stock funds than they have been removing, reversing a 33-week-long outflow, this is focusing on the wrong element in the equation.  Retail investors provide only a minor amount of the rocket fuel used to elevate the stock market over the past several months.

Look at the amounts here, and also pay attention to the timeframe:

Over a 36 week period spanning from May 2010 to the end of January 2011, there was only one instance of 'investors' putting more money into stock mutual funds than they withdrew, and that one ,outlier was well under a billion dollars.  Over that 36 week period, over $100 billion was removed from the markets by investors.  Even when money started moving back in over the past two weeks, I want you to note the scale; the combined total is $6.7 billion.  Keep that figure in mind.

Instead, we should first focus on the massive injections of raw, potent, thin-air money (a.k.a. "credit easing") by the Fed into the financial system.  Sometimes this is referred to as "liquidity," which it is.  But that's too narrow a definition, because it is much more; it also happens to be high-powered base money (a.k.a. 'Wall Street rocket fuel').

Here's the stock market story over the past eight months:

Note that QE II began in early November of 2010 and that the stock market is up 20% since the end of August.

As an aside, I used to track the Fed's thin-air money programs very closely, and if you had told me as recently as three years ago that the Fed would have been running 11-figure POMO operations each and every month, I would have told you it was unthinkably impossible.  But here we are, that is exactly what is happening, and I am largely numb to the process, which worries me somewhat, as it means that my baseline has shifted.

At any rate, the point here is that from those August lows to now, retail investors have taken out far more money from the stock market than they've placed back in; a total of around minus $38 billion.

But over that same period, the Fed has placed nearly an entire order-of-magnitude more thin-air money, some $350 billion dollars, into the hands of financial institutions, some of whom consider the stock market their personal playground.

Here's a chart of the cumulative POMOs by the Fed from the end of August 2010 to now:

Should we consider the injection of more than a third of a trillion dollars and a stock market that is up by 20% to be a coincidence?  No, not in the least.  The stock market has become, if anything, a liquidity gauge first and a discounting machine second.  The fundamental that matters most is how much money is flowing into the machine.

So it is my view that the trillions of dollars of thin-air money and deficit spending are finally finding their mark (asset prices) and doing their work, just as I predicted they would.  Where some called for deflation to be the irresistible force that would drag us all down, I've consistently leaned towards the side of inflation.  Although, to be fair, I have always hedged that view somewhat, with a 70/30 split held for nearly 5 years that was recently amended to 80/20 (in 2010 shortly after QE II was announced).

On a Tear

Unfortunately for the rest of the world it's not simply the stock market that is the lucky beneficiary of all this Fed largess.  Thin-air money, once released into the wild, tends to have a mind of its own.

Commodities are now setting new records almost daily.  Where the stock markets still have some catching up to do, commodities are exploring virgin territory.

This is serious business, folks.  The future is not going to arrive 'someday.'  For the billions of people who spend a huge portion of their income on food and fuel, it has already arrived.

Looking at the above chart of the past 12 months, what we see is that everything, from metals to stocks to bonds to grains to energy, has experienced profound price increases. That pretty much covers everything you need to live on and the bulk of the paper universe.  Such a chart is a historical rarity for any one country, yet it currently happens to apply to the entire world.  You are living in historic times, which certainly belabors the obvious.

Your Lying Eyes

On the flip side, the story we are being told almost daily is that inflation is very low -- too low, even -- in a worrisome sort of way.  I am reminded here of an old Richard Prior skit where his wife walks in on him in bed with another woman.  To her increasing agitation, he denies that he has been cheating on her, finally shouting, "Who are you going to believe, woman?  Me, or your lying eyes!?"

Well, my lying eyes see something very different in that chart above from what I am being told; instead of worryingly low inflation, I see rapidly rising inflation that is very close to slipping out of control.   

I spend as much time on this subject as I do because the decisions you make based on whether you are protecting yourself from inflation vs. deflation are as different as to whether you grab an anvil or a life raft on your way out the door when facing an emergency. 

I do my best to let the data do the talking, and right now it is saying inflation.

How long will it last?

The old saying is, Don't fight the Fed.  That's good advice.  I have dutifully been following the developing story by watching what the Fed does, not what it says, and by letting prices tell me which way the wind is blowing.  It's a regrettable position to be in, because it's nearly impossible to make any long-range plans when you have no idea what the Fed is going to do next.  But here we are.

How long the stock market rally will last is therefore unknowable, but stocks and bonds and commodities will remain elevated in price for as long as the Fed continues to dump hundreds of billions of thin-air money into the markets.  The only problem is that there's no clear exit strategy for the Fed.

Putting money into the markets is a very easy thing for the Fed to do.  Letting rope let out under full sail is easy; tugging it back in is difficult.

The Fed faces a similar asymmetry.  Market participants are always eager to take fresh money hot off the press.  An infinite number of things can be done with that money almost instantly.  But coming up with money to give backto the Fed for Treasury of MBS paper?  All sorts of difficulties arise.

"Wait, we'd have to sell a lot of things to free up that kind money and what, exactly, are you proposing to hand us in return? Treasuries? Um, no thanks, not right now. Agency debt? Uh, no, that doesn't fit our portfolio needs right now either.  Perhaps next week?"

Further, when the Fed goes to get its money back from the marketplace, that action will drain liquidity, creating ripples throughout all sorts of markets, especially and including knocking the stock market down.  Very few people complain about adding thin-air money; a crowd roars its disapproval for the reverse.

Too Late

The bottom line is that by the time the Fed becomes institutionally aware that inflation is raging across the globe - and I often wonder when they'll finally awake to the threat - it will be too late.  Inflation will have the momentum, and it will take a vast overreaction on the part of the Fed to restrain it.  They'll have to drain enormous amounts of liquidity and tolerate vastly higher interest rates to be able to do that, and I doubt they have the courage for such bold action.  I think they will hesitate, equivocate, and ultimately be late.

History suggests that inflation is best tamed early, but the Fed is already late and demonstrating a remarkable callousness by doing the exact opposite of fighting inflation.  While we cannot know what it is that the Fed sees, or which demons it is fighting that provide the internal rationalization for risking a hyperinflationary outcome, we can only conclude that these threats are more spectacular than the alternatives.  

Unfortunately, these events conform to the main themes that I have been writing and advising about for the past several years.  Sadly, they are not a surprise at all; the only mystery to me so far is how they have managed to carry on as long as they have.

Events of the past few weeks - unrest in Tunisa/Egypt/Jordan, skyrocketing food prices, Dow cracking a 2-year high, dropping dollar with rising bond yields - make me even more confident in the conclusions of my recent report on How This Will All End (published January 12) in which I derive a calculated estimate of when a final fiscal deterioration will overwhelm even the best of intentions. While the money-printing-induced high we're currently on may feel fun today, the unavoidable inflationary smackdown we'll experience tomorrow most certainly will not. 

Click here to read the report on How This Will All End (free executive summary, enrollment required for full access)

Hindenburg Omen Creator Has Exited the Market

If anyone has money in the stock market – time to pay attention.  September and October typically see high stock market volatility – and with much of the ‘stimulus’ ending – it could get interesting. 

U.S. stock mutual funds have seen a net ($) outflow for 15 consecutive weeks (totaling almost $50 billion).

If you are unfamiliar with the ‘Hindenburg Omen’ – it is a technical indicator that has preceded all U.S. stock market crashes since 1987. 

It has now been confirmed on three separate days over the past 2 weeks.

“It is named after the Hindenburg disaster of May 6th 1937, during which the German zeppelin was destroyed in a sudden conflagration." Granted, the Hindenburg Omen is not a guarantee of a crash, and the five criteria that must be met for a Hindenburg trigger typically need to reoccur within 36 days for reconfirmation. Yet the statistics are startling: "Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty-days." The last Hindenburg Omen occurred during the lows of 2009. Today, we just had another (unconfirmed) Hindenburg Omen. It is time to batten down the hatches - something big is coming.”

This link shows the criteria:

http://www.zerohedge.com/article/hindenburg-omen-here

jg – August 23, 2010

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Hindenburg Omen Creator Has Exited the Market

www.zerohedge.com

http://www.zerohedge.com/article/hindenburg-omen-creator-has-exited-market

Submitted by Tyler Durden on 08/23/2010 13:43 -0500

As we reported first, last week saw the second confirmation of the Hindenburg Omen, most recently sighted for the first time on August 12. Presumably this is an indication of putting one's money where one's mouth is (and away from the market).

From the WSJ:

The latest trigger has prompted the Omen’s creator, Jim Miekka, to exit the market. “I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”

The Omen has been behind every market crash since 1987, but significant stock-market declines have followed only 25% of the time. So there’s a high likelihood that the Omen could be nothing more than a false signal.

But that isn’t stopping Miekka from taking any chances, especially as September, typically the market’s worst-performing month, sits only one week away.

“It’s sort of like a funnel cloud,” he said. “It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.” He added he’s not currently shorting anything, although he may look to short Nasdaq stock index futures in the next few weeks, “depending on how the technicals go.”

Despite the ominous forecast, there are some glimmers of hope. Miekka doesn’t expect to sit on the sidelines for very long. In fact, Miekka, who is an avid target shooter despite being blind, is looking at put volumes and various moving averages that will offer clues of when he will start buying again.

Is a Crash Coming?

It’s rare – but occasionally you’ll see a mainstream media article that contains some truth.

This is one of those articles.

For the record – the Fed is not ‘nervous’ or ‘worried’ about these developments.  The Fed created these developments.

From the article – here’s the #1 reason things are heading south.  Remember – this is what happens when your money is created by debt.  Eventually – the math of exponential debt growth catches up to you – and runs you over.

“People still owe way too much money. Households, corporations, states, local governments and, of course, Uncle Sam. It's the debt, stupid. According to the Federal Reserve, total U.S. debt—even excluding the financial sector—is basically twice what it was 10 years ago: $35 trillion compared to $18 trillion.”

If you think this is a mystery to the Federal Reserve, the Bank of England, the European Central Bank, the IMF, Bernanke, Greenspan, Obama, Geithner, etc., etc. – you’re living in a fantasy.

I have a feeling that the next couple of months – which have historically seen significant stock market volatility – will be rather exciting.

jg – August 13, 2010

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August 13, 2010

Is a Crash Coming? Ten Reasons to Be Cautious

Wall St. Journal

Could Wall Street be about to crash again?

This week's bone-rattlers may be making you wonder.

I don't make predictions. That's a sucker's game. And I'm certainly not doing so now.

But way too many people are way too complacent this summer. Here are 10 reasons to watch out.

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That's well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you're getting paid well to take risks, they may make sense. But what if you're not?

2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.

3. Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that's reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true.

Crowds panic on Wall Street on Oct. 24, 1929.

4. Deflation is already here. Consumer prices have fallen for three months in a row. And, most ominously, it's affecting wages too. The Bureau of Labor Statistics reports that, last quarter, workers earned 0.7% less in real terms per hour than they did a year ago. No wonder the Fed is worried. In deflation, wages, company revenues, and the value of your home and your investments may shrink in dollar terms. But your debts stay the same size. That makes deflation a vicious trap, especially if people owe way too much money.

5. People still owe way too much money. Households, corporations, states, local governments and, of course, Uncle Sam. It's the debt, stupid. According to the Federal Reserve, total U.S. debt—even excluding the financial sector—is basically twice what it was 10 years ago: $35 trillion compared to $18 trillion. Households have barely made a dent in their debt burden; it's fallen a mere 3% from last year's all-time peak, leaving it twice the level of a decade ago.

6. The jobs picture is much worse than they're telling you. Forget the "official" unemployment rate of 9.5%. Alternative measures? Try this: Just 61% of the adult population, age 20 or over, has any kind of job right now. That's the lowest since the early 1980s—when many women stayed at home through choice, driving the numbers down. Among men today, it's 66.9%. Back in the '50s, incidentally, that figure was around 85%, though allowances should be made for the higher number of elderly people alive today. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job. This is bullish?

(Today's bonus question: If a laid-off contractor with two kids, a mortgage and a car loan is working three night shifts a week at his local gas station, how many iPads can he buy for Christmas?)

7. Housing remains a disaster. Foreclosures rose again last month. Banks took over another 93,000 homes in July, says foreclosure specialist RealtyTrac. That's a rise of 9% from June and just shy of May's record. We're heading for 1 million foreclosures this year, RealtyTrac says. And naturally the ripple effects hurt all those homeowners not in foreclosure, by driving down prices. See deflation (No. 4) above.

8. Labor Day is approaching. Ouch. It always seems to be in September-October when the wheels come off Wall Street. Think 2008. Think 1987. Think 1929. Statistically, there actually is a "September effect." The market, on average, has done worse in that month than any other. No one really knows why. Some have even blamed the psychological effect of shortening days. But it becomes self-reinforcing: People fear it, so they sell.

9. We're looking at gridlock in Washington. Election season has already begun. And the Democrats are expected to lose seats in both houses in November. (Betting at InTrade, a bookmaker in Dublin, Ireland, gives the GOP a 62% chance of taking control of the House.) As our political dialogue seems to have collapsed beyond all possible hope of repair, let's not hope for any "bipartisan" agreements on anything of substance. Do you think this is a good thing? As Davis Rosenberg at investment firm Gluskin Sheff pointed out this week, gridlock is only a good thing for investors "when nothing needs fixing." Today, he notes, we need strong leadership. Not gonna happen.

10. All sorts of other indicators are flashing amber. The Institute for Supply Management's manufacturing index, while still positive, weakened again in July. So did ISM's new-orders indicator. The trade deficit has widened, and second-quarter GDP growth was much lower than first thought. ECRI's Weekly Leading Index has been flashing warning lights for weeks. Europe's industrial production in June turned out considerably worse than expected. Even China's steamroller economy is slowing down. Tech bellwether Cisco Systems has signaled caution ahead. Individually, each of these might mean little. Collectively, they make me wonder. In this environment, I might be happy to buy shares if they were cheap. But not so much if they're expensive. See No. 1 above.

Write to Brett Arends at brett.arends@wsj.com

Crisis Reverberates in Credit & Stock Markets

We’re now beginning to see all of these ‘unintended’ consequences of the recent bailouts. Here’s a question you should be asking yourself – what if they’re not ‘unintended’? What if the ‘problems’ (mentioned in the article below) developing daily are part of a plan? Let’s summarize some of these unintended consequences.

1. Investors are selling Fannie and Freddie bonds and buying bonds issued by large U.S. banks since the banks are now backed by the U.S. government. No one should be surprised that investors would take higher yields with implied government guarantees in this chaotic environment. So – we see investors flocking to big bank bonds and out of the bonds that are not backed by the government. No Surprise. What long term effects will this have on Fannie and Freddie? Will the government continue to back them and how will they back them? What happens to the housing market if it doesn’t?

2. The U.S. government will be forced to issue new debt (Treasuries) to pay for these bailouts. This will drive up interest rates – including mortgages. What will happen to the crippled housing market when you throw in much higher interest rates? Nothing good. As the article below mentions – we’re already starting to see this. Last week the 30 yr mortgage rate increased to 6.75% from 6.05%.

3. Last month the Federal Reserve moved to support short-term commercial paper since this market was frozen. What happened? Investors are not dumb. Not surprisingly, they invested in the commercial paper backed by the Fed and pulled away from short-term debt not backed by the Fed. Who is getting hurt by this? Corporations and European Banks.

4. The Fed’s efforts to unfreeze the short-term debt markets coupled with the FDIC’s efforts to stop bank withdrawals (increased insured amount to $250K from $100K) has led many money market fund managers to stay out of the short term debt markets – especially commercial paper. They are worried that Americans and corporations will favor simple bank accounts over their funds. Money market funds have historically contributed vast amounts of money to the commercial paper market – without them, the commercial paper market will remain largely frozen – where many companies and banks finance short-term obligations. Soon after these efforts, you’ll notice the Fed began offering money directly to corporations (they have not done this since the Great Depression).

So, if we again strip away all of the government/Federal Reserve rhetoric we see what is really happening. On the surface, it appears that our leaders are doing whatever they can to help the situation. If we take a close look at what is really happening, we see something else. We see these ‘bailouts’ increasing the U.S. debt by enormous amounts, we see interest rates rising significantly and we see normal short-term funding drying up. Do these efforts actually help or hurt the housing market? Higher interest rates will certainly hurt the housing market. Can the U.S. support trillions more debt? As you’ve seen me explain before – the answer is no. Sooner or later this is going to get very, very bad. Is it good for corporations and banks to borrow directly from the Fed? They are providing ‘solutions’ that are causing our government, corporations and banks to borrow even more from them. Do we really need to be even more indebted to a cartel of international bankers? As I’ve said before, we will not be able to get out of their grip until our monetary system changes.

The truth is that central banks the world over are negatively impacting the world’s economy. Their ‘solutions’ are simply accelerating the problems. As I’ve said before, I believe that a plan is at work here – and it certainly doesn’t benefit us.

jg – October 16, 2008

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October 16, 2008

Crisis Reverberates in Credit, Stock Markets

U.S. Efforts to Aid Debt Arena Cause Unintended Upshots
By LIZ RAPPAPORT and SERENA NG
Wall St. Journal

Government efforts to heal the credit markets are having unintended consequences that are roiling different sectors of the market and adding to anxiety among investors, who already are worried about the impact of a possible recession on U.S. companies.

Barely two days after the Treasury announced plans to buy stakes in U.S. banks and the Federal Deposit Insurance Corp. said it would provide guarantees on bank debt for three years, investors are making unexpected shifts.

Wednesday, bonds issued by mortgage providers Fannie Mae and Freddie Mac sold off sharply, even though these companies have government backing behind their debt. Traders said hedge funds were forced to sell as they deleverage, and investors were selling some Fannie and Freddie bonds -- known as agency debt -- and shifting money into bonds issued by large U.S. banks. These bank bonds boast higher yields and also would benefit from implied government guarantees, making them appear relatively safe in the eyes of risk-averse investors, for now.

The difference between yields on two-year Fannie Mae bonds and Treasury notes rose 0.25 percentage point Wednesday to 1.5 percentage points. That gap was less than a single percentage point when the government said in early September that it would place Fannie and Freddie under conservatorship.

The bonds issued by Citigroup Inc., Goldman Sachs Group Inc. and Bank of America Corp. gained over the last two days.

Investors have begun "to realize how potent the new FDIC-backed bank paper could be," said Jim Vogel, an analyst at FTN Financial, who recently noted that there is some debate over how explicit the government's guarantee of Fannie Mae- and Freddie Mac-backed debt is.

The agency debt's selloff is the latest unexpected market response to Federal Reserve and Treasury attempts over the past few weeks to plug the financial system's holes. The bailout plans may force the U.S. to issue new government debt that could drive up interest rates on mortgages, undermining efforts to rescue the housing market, the very problem that started it all.

Also, last month, the Fed moved to backstop short-term debt called asset-backed commercial paper, which led investors to pull away from the other half of the short-term debt market because it had no government guarantee. This debt was issued largely by corporations and European banks.

Not long after, the government's move to provide more insurance for bank deposits caused some money managers to change the way they allocate their funds.
"Things are moving so fast, it's hard for anyone to know what is going on," said Jim Goulding, manager at Chicago trading firm GH Traders LLC.

While Treasurys remain popular now, because of a flight-to-quality trend that feeds off their safety, another unintended impact may be in the wings. The bailout plans will result in massive new issuance of U.S. Treasurys, sold to pay for it all. This likely would dilute the Treasury bond market, drive down prices, push up yields and cause mortgage rates to rise.

A miniature version of this happened this week. The average 30-year mortgage rate, which is based off of the 10-year Treasury rate, rose to 6.75% Wednesday from 6.05% Oct. 6, as the 10-year Treasury yield rose, according to HSH Associates.
"You have unintended consequences that spark government actions, that create other unintended consequences," said David Kotok, chairman at money managers Cumberland Advisors.

The Fed's efforts to unlock the short-term markets also have had meddlesome effects. The FDIC may have stopped the flood of withdrawals from banks when it agreed to insure deposits in accounts up to $250,000, up from $100,000, but this has led many money-market fund managers to stay out of the short-term debt markets, particularly for commercial paper. They worry that cash-strapped Americans and corporate treasurers will favor simple bank accounts over their funds even though they pay slightly higher returns.

Money-market fund managers are traditionally large participants in the commercial-paper market, where companies and banks finance near-term obligations.
The managers remain uncomfortable investing in debt that matures in more than a day. They still are holding on to large cash positions in case they are hit with redemption requests from investors.

The government's plan isn't a "panacea for money markets," said Alex Roever, fixed-income strategist at J.P. Morgan Chase & Co.
In mid-September, when the Fed agreed to lend to U.S. banks with asset-backed commercial paper as collateral, the move was intended to unlock the market and help mutual funds sell the debt to banks in order to meet investor redemptions.
In the weeks following the Fed move, some commercial-paper brokers lamented that the Fed's implied backstop for the asset-backed commercial-paper market caused investors to favor the higher yielding asset-backed debt over unsecured commercial paper issued by many corporations and European banks.

The imbalance squeezed European banks already having trouble funding themselves, and the Fed ultimately had to step in again to offer short-term loans directly to companies and banks.

Write to Liz Rappaport at liz.rappaport@wsj.com and Serena Ng at serena.ng@wsj.com

The Bernanke Market

Wow. Someone who is on the right track. I think this may be the first time I’ve seen a mainstream media article that makes the correlation between our money supply and the stock market.

What will happen to our stock market when our government and the Federal Reserve ‘unwind’ all of the programs adding money to this system? If you’ve read my earlier posts on our monetary system – you know the answer.

Outstanding credit market debt continues to fall – so when the Fed removes all of the additional sources of money from the system – we’re going to watch a free-fall collapse of our stock market and our economy. We’ve been setup to fail – and it won’t take much to pull the rug out from under us.

jg – July 15, 2009
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JULY 15, 2009

The Bernanke Market

We won't get real growth until Congress and Treasury get policy right.

Wall St. Journal

By ANDY KESSLER

I remember once buying the stock of a small company and I couldn't believe my luck. Every time my fund bought more shares the stock would go up. So we bought even more and the stock kept climbing. When we finally built our full position and stopped buying the stock started dropping, ending up at a price below where we started buying it. We were the market.

Just about every policy move to right the U.S. economy after the subprime sinking of the banking system has been a bust. We saved Bear Stearns. We let Lehman Brothers go. We forced Merrill Lynch, Wachovia and Washington Mutual into the hands of others. We took control of Fannie and Freddie and AIG and even own a few car companies, pumping them with high-test transfusions. None of this really helped.

We have a zero interest-rate policy. We guaranteed bank debt. We set up the Troubled Asset Relief Program (TARP) to buy toxic mortgage assets off bank balance sheets. But when banks refused to sell at fire sale prices, we just gave them the money instead. Dumb move. So we set up the Public-Private Investment Program to get private investors to buy these same toxic assets with government leverage, and still there are few sellers. Meanwhile, the $1 trillion federal deficit is crowding out private investment and the porky $787 billion stimulus hasn't translated into growth.

At the end of the day, only one thing has worked -- flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.

The good news is that Mr. Bernanke got the major banks, except for Citigroup, recapitalized and with public money. June retail sales rose 0.6%. Housing starts jumped 17% month to month in May and will likely be flat for June. Second quarter GDP may be slightly up. And he was successful in spreading a "green shoots" psychology throughout the media. But the real question is, now what? Government interventions are only meant to light a fire under the real economy and unleash what John Maynard Keynes called our "animal spirits." But government dollars can't sustain growth.

Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along. It's the ultimate Enforcer.

In mid-May, Mr. Bernanke's outlook seemed to change. Maybe he didn't approve of the sharp housing rebound -- like we need more houses! Maybe he saw inflation in commodity prices -- oil popping to $72 from $35. Or, more likely, he finally realized that he was the market and took his foot off the money accelerator, as evidenced in the contracting monetary base (see nearby chart). Sure enough, things rolled over -- the market dropped 7.5% from its peak, oil prices dropped almost 17%, and even gold has lost some of its luster. But in July, the Fed started buying again and the market rallied.

Can the U.S. economy stand on its own two feet without Mr. Bernanke's magic dollar dust? Eventually, but apparently not yet. Unemployment stubbornly hit 9.5% in June, according to the Bureau of Labor Statistics. Housing prices are still dropping, albeit at a slower pace, and foreclosures are still rampant.

But I think what really bothers the market is that the structural problems that got us into trouble in the first place still exist. We took the easy way out and, with the help of Treasury Secretary Tim Geithner's loose "stress tests," swept banking problems under the carpet. We waved off mark-to-market accounting and juiced bank stock prices to help them recapitalize, but all those toxic mortgage assets on bank balance sheets are still there as anchors on lending. All the pump priming and stock market flows didn't get rid of them.

Hats off to Mr. Bernanke for getting the worst behind us. He'll be pressured politically to keep pumping out dollars, but he should resist the urge. The stock market will ignore his dollars if it doesn't believe they'll turn into real profits. Green jobs and government health-care clerks do not make a productive, sustainable economy. That can only come from innovative companies with access to growth capital. The stock market won't turn bullish until it sees that type of economy.

Again, when it's clear that you are the market you have to stop buying and begin tackling the hard stuff. By not restructuring banks, by not getting bad loans off bank balance sheets, by not standing up to the massive increases in government debt crowding out private capital, the Fed and Treasury are holding back real economic growth.

Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).

Federal Reserve is Driving the Stock Market

You’ve probably wondered – if there is so much negative economic data out there – why does the stock market continue to rise? With the Dow Jones Industrial Average and S&P 500 index up by significant percentages this year – it would seem that stock investors know something we don’t. Is this true or is something else happening?

If you invest in stocks, then you are familiar with the stock price to earnings ratio. This is a good metric to determine if a stock price is considered expensive – and therefore, a good metric to determine whether or not to buy a particular stock (P/E trends). If we take this a step further and look at the P/E ratio for the entire S&P 500 index – we can get a good idea if it’s a good time to buy into the stock market.

So - there are two, very big questions we should answer when it comes to future stock prices:

1. Is the economy rebounding to the point that company earnings will increase significantly in coming quarters?

2. Are stock prices considered high compared to corporate earnings?

As I’ve said before – I see no indication (based on good, quantitative economic data) that the economy is rebounding. As we’ve seen – the economy continues to deteriorate – continuing job losses, growing residential and commercial loan defaults, home prices continue to decline, wages and income declining, etc. Therefore, I would not bet my financial future on a quick economic turnaround that will increase corporate earnings - based on the economic data that I trust.

Also remember, companies have been able to beat recent earnings estimates due to significant cost reductions – not due to sales/revenue increases. How much more can they cut if revenues continue to decline? Bottom line – I would not expect to see a significant turnaround in corporate earnings any time soon.

This is not exactly good news considering current S&P 500 earnings. Over the past 20 months we’ve watched the biggest earnings drop in the history of the S&P 500. Again, you’re probably wondering – with such a big drop in earnings – why is the S&P 500 up approximately 35% since March? Good question. We’ll answer it after we look at the current S&P 500 P/E ratio.


With earnings plunging, we would expect to see a high P/E ratio if prices haven’t also plummeted. As I mentioned above, since S&P 500 stock prices have increased significantly since March – the S&P 500 P/E ratio is through the roof.
From Nathan’s Economic Edge (http://economicedge.blogspot.com/):
“The higher stocks go without real earnings and without clearing the debts from consumers, the higher price to earnings ratios will go. It is ultimately earnings that underpin the equity markets and the price of stocks has NEVER been so high compared to earnings.

It would take one heck of a lot of growth to pull P/E’s back into a normal historic range, and the only reason they look as “good” as they do is because the financial industry was allowed to go back and mark their assets to fantasy – otherwise the large banks are still insolvent and would not have earned a nickel.”
The answer to question #2 is – stock prices are at historic highs compared to earnings – and not by a small margin. We see the same situation with the DJIA.
Bottom line – we see no real economic turnaround and P/E ratios are at historic highs. What does this tell you? It tells you that it’s a very bad time to invest in the stock market. If you’re not in the market – stay out. If you’re in – get out. The whole house of cards could collapse at any time.
So – the final question to answer is – why are stocks increasing if the economy and earnings are plummeting? It’s not because the economy is rebounding (regardless of what the media tells us) and it’s not because stocks are cheap. As Chris Martenson shows us below – the culprit is – once again - the Federal Reserve.
If you’ve seen the movie ‘The Sting’ (1973), you have some knowledge of how a confidence (con) scheme works. In the movie, Robert Redford and Paul Newman’s characters ‘con’ a big time bad guy (the ‘mark’) out of some serious money. The ‘con’ was broken down into the following acts:
1. ‘The Set Up’ – devise a plan to deceive and then steal a significant amount of money from the ‘mark’
2. ‘The Hook’ – create a situation that ‘hooks’ your ‘mark’ – meaning that the ‘mark’ becomes very interested in what your scheme can do for him
3. ‘The Tale’ – tell a good story that the ‘mark’ believes will make him lots of money. A good tale preys upon the weaknesses of the ‘mark’.
4. ‘The Sting’ – just when the ‘mark’ thinks he’s going to make a killing – pull the rug out from under him and steal his money
What was the most important lesson from this movie? The ‘mark’ can never know that he’s been taken.
The people of the United States have been the victim of the biggest confidence scheme in the history of the world.
By creating bank panics in the late 19th/early 20th centuries, the bankers behind the Federal Reserve set the stage for the Federal Reserve Act of 1913.
We’ve been told a grand tale – that our current banking system is stable, reliable and benefits everyone.
We’re about to experience the ‘Sting’ – when the international bankers behind the Federal Reserve try to take everything from us. This will most likely begin in earnest with a significant stock market crash.
With high stock prices, low corporate earnings and a deteriorating economy – our stock markets have been setup for an historic fall.
It’s going to be epic.
jg – August 7, 2009

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Fed POMO activity and the Stock Market
Friday, August 7, 2009, 11:38 am, by cmartenson

Today, again, we receive news that Fed is continuing to pour more and more POMO money into the banking system, this time with a 'mere' ~$2 billion addition.
August 7 - New York Fed purchases $1.937 billion in agency coupons
As long-time readers here know, I have been tracking the Permanent Open Market Operations (or "POMO") activity of the Fed for a long time.
As I wrote in The Five Horsemen ( May 31 2009, enrollment required $):
The beginning of the end for nearly every debt-ridden country has always been the attempt to pay for past expenditures with newly-minted money. It always starts innocently enough and seems like the right thing to do, but soon the programs grow and grow, and eventually the currency of the country is destroyed.
Now the Fed is openly and actively buying dodgy debt from the government as well as from the private sector. I covered on this in May (2009) in an "In Session" posting, where I charted the amount of US Treasury debt that was being purchased by the Federal Reserve on a daily basis.

This chart reflects only the Treasury purchases. When we add in agency debt, mortgage-backed securities, and various other corporate debt programs, we find that the Federal Reserve is printing up roughly $15 to $30 billion dollars a day just to keep things limping along.
As for the opening quote by Mises, which I think most accurately reflects how things will turn out, I think it is safe to say this: Any country that is printing up to $30 billion a day just to keep things moving along is not voluntarily abandoning credit expansion.
This means that we are risking a final catastrophe of the currency system involved. Unfortunately, the currency in question also happens to be the world's reserve currency, so this has enormous, far-reaching implications.
Today I want to update that chart above and provide a little more context by placing it beneath a scaled chart of the Dow Jones index (time periods match exactly so the charts align). Again, what you are looking at is a chart of POMO activity that is being expressed as "billions of dollars per day." No effort has been made to account for weekends or holidays; this is simply taking each POMO and dividing it by the number of days that pass until the next one.

What we might wonder here are three things:
1. How would the stock markets have behaved without the massive daily additions of billions of dollars?
2. When the stock market turned around in advance of the initiation of the POMO purchases which major bank holding companies, such as GS, were effectively front-running this flood of money?
3. If the stock market is up 40%+ and green shoots are everywhere, why is the Fed continuing to pour gasoline on the fire ($16 billion this week so far)?
Part of the answer may lie in a nice piece of work posted at ZeroHedge which notes that on POMO days that stock markets exhibited some statistically unlikely upward thrusts in the final few minutes of each associated trading day.
Under this scenario POMO money is being shuffled out of the endless thin-air vaults of the Fed and into the banking system where it needs to find something to do. One of those things, it seems, is to goose the stock market, especially late in the day.
The goal, we surmise, is simply to get the stock market to move upwards. This is not an unthinkable idea to me because, frankly, it is exactly the prescription I would write for an economy as dependent on rising asset prices as is the United States'. If a rising stock market helps to get people out buying and spending again then it is a worthy goal in many a policy-makers mind, I am sure.
The only question here is "what does this mean to me?" We'll be exploring that in some detail later on…

Economic Winds are Shifting (Maintream Media)

I wrote last week (A Perfect Storm) that despite all of the positive economic mainstream media articles in recent weeks – underlying economic fundamentals continue to deteriorate. As I read the Wall Street Journal this morning (August 31, 2009) – I noticed a couple of articles that speak to a few problems that could lead to some serious economic problems in the near future – problems that I (and others that are studying economic data themselves) have mentioned many times over the past few months.

This is unusual for mainstream media – we normally see articles speak to negatives – only after a negative economic event has occurred. We see very little economic analysis within mainstream media that addresses our true economic condition and then reports the potential for negative impacts to our economy, earnings, markets, etc. In recent months, we’ve been fed a steady diet of positive news (based on bad economic data and horrible analysis) with very little attention given to the severe problems lurking within real economic data.

It has all been positive spin.

So – when I see a few mainstream media articles that speak to a few of the economic issues I have been following closely – I take notice.

Here are a few articles from today from the Wall St. Journal:

Raft of Deals for Failed Banks Puts U.S. on Hook for Billions
• To encourage banks to pick through the wreckage of their collapsed competitors, the Federal Deposit Insurance Corp. has agreed to assume most of the risk on $80 billion in loans and other assets. The agency expects it will eventually have to cover $14 billion in future losses on deals cut so far. The initiative amounts to a subsidy for dozens of hand-picked banks.

Commercial Real Estate Lurks as Next Potential Mortgage Crisis
• Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat.

Can Rally Run Without Revenue?
• As stock investors turn their focus to earnings prospects for the second half and 2010, they are zeroing in on one of the market's biggest challenges: lackluster corporate revenue. The market barreled ahead this summer and is hovering near its high for the year, fueled in large part by stronger than-expected second-quarter earnings. But a significant driver of the good news was cost cutting. Many companies posted disappointing sales.

If you’ve read my previous posts – then you know that all three of these issues are going to have a severe negative impact on economic activity (and markets) in the near future. If we continue to see more articles like these – get ready.

Knowing how the global elite operate – it’s quite possible these types of articles are pre-empting some significant negative economic ‘events’. Since September and October have historically seen significant market volatility – I believe we’re in for a very rough ride.

Stay tuned.