Stocks and Precious Metals Charts - How I Learned to Stop Worrying and Love the Bubble

 

"As a dog returns to its vomit, so a fool returns to his folly. "

Proverbs 26:11

"And in some ways, it creates this false illusion that there are people out there looking out for the interest of taxpayers, the checks and balances that are built into the system are operational, when in fact they're not. And what you're going to see and what we are seeing is it'll be a breakdown of those governmental institutions. And you'll see governments that continue to have policies that feed the interests of -- and I don't want to get clichéd, but the one percent or the .1 percent -- to the detriment of everyone else."

Neil Barofsky, 2012 interview with Bill Moyers

"Now why don't you just take it easy, Group Captain, and please make me a drink of grain alcohol and rainwater, and help yourself to whatever you'd like."

General Jack D. Ripper (Sterling Hayden), Dr. Strangelove

"Where are the leaders? Has our political process become so compromised by powerful interest groups and the threat of character assassination that even the best among us will not dare to speak honestly about the solutions that might bring us back to common sense and fundamental fairness?"

Senator Jim Webb, A Time to Fight, 2008

"General Turgidson, I find this very difficult to understand. I was under the impression that I was the only one in authority to order the use of nuclear weapons."

President Merkin Muffley, Dr. Strangelove

From Wall Street to the White House, it's all about serving the oligarchy, the 1 percent, while maintaing plausible deniability. 

The market came in broadly expecting a whipsaw, with the FOMC standing pat with dovish verbiage, and then Jay Powell coming in and raining on the parade with skeptical cautions.

No way Zimbabwe Jay.  

Although it must be said that the Street took it much further than he allowed.  It reminded me of a college friend who kept seeing 'signs' from a girl for which he pined, but would not actually approach.

I think it would have been interesting to see the FOMC commentary on bubblevision performed by the voice-over actor from The Curse of Oak Island.

Stocks rallied very hard, parabolically surpassing their bubble peaks.

The Dollar dropped off a cliff.

Gold and silver rallied like rockets.

And there is the second phase of the wash and rinse.

VIX did not drop but marked time in place.

Stock option expiration on Friday.

I can feel the hammer getting closer, and closer, to the retail bulls.  

But give it some time.

This is not sour grapes.   I snagged some serious coin in the  miners today, buying them into this recent pounding down the last two days.  It was just too contrived and cliché.  

Pretty much like all the official 'verbiage' we get these days. 

You know how they ran gold up to a new high, ran all the short stops, and then smashed it down into yesterday?

Patented move.   

And I think they may have the same play in store for stocks.  

But timing and leverage are everything.

Meanwhile, we've got two wars a leaping. 

Changed my mind about not using twitter. 

Have a pleasant evening.

 

Stocks and Precious Metals Charts - Minsky Moment - Our Year of Living Dangerously

 

"In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance."

Hyman Minsky, The Financial Instability Hypothesis

"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revival, but finally giving up in the final collapse."

Charles Kindelberger, Manias, Panics, and Crashes: A History of Financial Crises

"Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial web sites and in the reports of Wall Street analysts. Minsky’s hypothesis is well worth revisiting."

John Cassidy, The Minsky Moment, The New Yorker, 4 February 2008

"FDR came right at Wall Street and the Banks with serious reform that saved capitalism from itself, and worked for a generation to hold back its darker impulses.  This is a lesson that we have apparently forgotten.

If the Fed attempts their old fix [cheap money, financial asset inflation] once again, they may do what I thought was almost inconceivable, and go a step beyond mere stagflation which is bad enough, and cause an actual break in confidence, and the bond of their word, the currency. The people of the world will not be fooled forever.

As Hyman Minsky once said, and the moderns seem to have forgotten, 'Anyone can create money; the problem is in getting it accepted.'   He should have added, except by force [force is bad monetary policy by other means].  Reform goes hand in hand with recovery."

Jesse, Moral Hazard of the Fed's Current Policy: Fraudulent Paper, 24 January 2013


When a similar boom and bust, fomented in each case by Fed monetary policy, happens three times in 21 years, you may wish to consider that it is not an accident, or a coincidence, or addle-brained fat finger error, but something a little more purposeful, and at its heart more than mere careless incompetency.

The recent insider trading scandals in the Fed's highest ranks, and the ensuing cover-up and deflection, make our confidence a bit more strained.

Non-Farm Payrolls tomorrow.

Have a pleasant evening.

Stocks and Precious Metals Charts - Stock Bubble III: The Great Unraveling - Stock Option Expiration Friday

“Realize that narcissists have an addiction disorder. They are strongly addicted to feeling significant. Like any addict they will do whatever it takes to get this feeling often. That is why they are manipulative and fakers. They promise change, but can't deliver if it interferes with their addiction.”

Shannon L. Alder


"As a dog returns to its vomit, so a fool returns to his folly."

Proverbs 26:11


"This is the contempt in which they hold the majority of American people and the political process: the common people are easily led fools, and everyone else who is smart enough to know better has their price.

And they would beggar every middle class voter in the US before they will voluntarily give up one dime of their ill gotten gains."

Simon Johnson, The Quiet Coup, May 2009


"Remember that there will be trying times in the last days.  For people will love only themselves and their money.  They will be boastful and proud, scoffing at God, dishonoring their parents, and ungrateful.  To them nothing is sacred.  They will be unloving and unforgiving; they will slander others and have no self-control. They will be cruel and despise what is good. They will betray their friends, be reckless and proud, and love pleasures of the world more than God. They may talk like they are religious, but they will reject the power that could make them godly.  Shun them."

2 Timothy 3:1-5

Stocks had another ranging day that ended up largely unchanged.

Trumpolini had his long-awaited signing ceremony with a Chinese delegation for the Trade-Lite Deal.  His speech was embarrassingly in character.

Gold and silver finished higher, and the Dollar closed a bit lower.

The stock market is now at bubble levels not seen since the Tech Bubble.

A reckoning with reality is on deck, most likely to arrive later this year. How much later is a very good question.

Protect yourselves, your hearts and minds as well as your money.  For the love of most has already gone cold.

Are we truly in the last days as some think?

As Newman observed, most centuries have thought that their times are the worst.  Pride inflates our view of ourselves in many ways.

No one can truly know when the end is coming, as you may recall.

But it seems as though an end of something, thought to be unassailable, is fast approaching.

And the consequences of this failure of pride, and the reaction its fanatical true believers, may be notable, for many years to come.

Try to not become swept up in the madness, remembering who you are and why you are here.

Have a pleasant evening.

Moral Hazard: The Abysmal Failure of the Doctrine Of Selective Justice For Finance

Moral Hazard - In economic theory, a moral hazard is a situation in which a party is more likely to take risks because the costs that could result will not be borne by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others. A moral hazard may occur where the actions of one party may change to the detriment of another after a financial transaction has taken place.

Wikipedia says that Economist Paul Krugman described moral hazard as "any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly."

Moral hazard is not only the misallocation of risk, but the mispricing of risk without significant consequences as well.  This also speaks to the misallocation of risk. As in a bubble.

In our most recent financial crisis we saw both the mispricing of risk in the initial collateralized debt obligations that fed the housing price bubble, and in the aftermath, where much of the consequences of the ensuing financial crisis were allocated to the taxpayers after the fact and without an explicit prior agreement to do so, under duress.

A rather sophistic defense of that approach and subsequent policy was provided by Larry Summers who in September of 2007 wrote an article entitled Beware of Moral Hazard Fundamentalists:

"In the financial arena the spectre of moral hazard is invoked to oppose policies that reduce the losses of financial institutions that have made bad decisions. In particular, it is used to caution against creating an expectation that there will be future 'bail-outs'."

As an aside, when I saw the new 'reform President' bringing in Timothy Geithner, Hank Paulsen, and Larry Summers to key posts in his administration, I suspected that the people's mandate for reform had been deflected, although there was the prior example of FDR bringing in Joe Kennedy to spearhead the SEC.  But, alas, Obama quickly turned out to be no Franklin Roosevelt, but a loyal member of the Wall Street wing of the Democratic Party.

And here we are, SEVEN years later. Forget 'future bailouts.' We have what seems to be never-ending bailouts, and subsidies, and special arrangements, and deals benefiting Wall Street, to the detriment of almost everyone else.

Here is a video of Senator Elizabeth Warren from yesterday's testimony in a hearing chaired by Senator Tim Johnson (D-SD) “Wall Street Reform: Assessing and Enhancing the Financial Regulatory System.”  

She begins by questioning Fed Governor Daniel Tarullo.  As you may recall, the Fed is one of the primary banking regulators, acquiring even more and broader regulatory powers in the aftermath of the 2008 financial crisis.

Her second question about the TBTF Banks and failure resolutions goes to FDIC Chair Martin J. Greenberg.

Near the end is a long statement/question from Senator Richard Shelby of Alabama. 

I bring this to light, in order to respond to those who say that the banking system has already been reformed.   It has not.

It is only 11 minutes in length and is worth watching. You can see it in its entirety here.

Special thanks go to Pam Martens for bringing these quotes to light in her excellent article, Jamie Dimon Gets $8.5 Million Raise for Illegal Conduct at JPM. I had not yet found a proper transcript. Pam's articles are consistently timely and of high content value.

“As Judge Rakoff of the Southern District of New York has noted, the law on this is clear. No corporation can break the law unless an individual within that corporation broke the law. (unlike some recent delusions from the Supreme court about the inalienable rights of soulless, disembodied Corporations which are constructs merely of common law with no superior claim to a higher authority equal to an individual's rights - Jesse)

Yet, despite the misconduct at these banks that generated tens of billions of dollars in settlement payments by the companies, not a single senior executive at these banks has been criminally prosecuted. Now, I know that your agencies can’t bring prosecutions directly, but you’re supposed to refer cases to the Justice Department when you think individuals should be prosecuted. So, can you tell me how many senior executives at these three banks you have referred to the Justice Department for prosecution?...

After the savings and loan crisis in the 1970s and 1980s, the government brought over a thousand criminal prosecutions and got over 800 convictions. The FBI opened nearly 5,500 criminal investigations because of referrals from banking investigators and regulators.

The main reason we punish illegal behavior is for deterrence; to make sure that the next banker who’s thinking about breaking the law remembers that a guy down the hall was hauled out of here in handcuffs when he did that.

These civil settlements don’t provide deterrence. The shareholders for the company pay the settlement; senior management doesn’t pay a dime. And, in fact, if you’re like Jamie Dimon, the CEO of JPMorgan Chase, you might even get an $8.5 million raise for negotiating such a great settlement when your company breaks the law.

So, without criminal prosecution, the message to every Wall Street banker is loud and clear: if you break the law you are not going to jail, but you might end up with a much bigger paycheck.

No one should be above the law. If you steal a hundred bucks on Main Street, you’re probably going to jail. If you steal a billion bucks on Wall Street, you darn well better go to jail too.”

Bubble-nomics: The Federal Reserve Balance Sheet and the SP 500

"How could I have done this? I was making a lot of money. I didn’t need the money. Am I a flawed character?

I realized from a very early stage that the financial market is a wholly rigged job. There’s no chance that investors have in this market....It’s unbelievable. Goldman-- no one has any criminal convictions. The whole new regulatory reform is a joke."

Bernie Madoff


"Unfettered capitalism is a revolutionary force that consumes greater and greater numbers of human lives, until it finally consumes itself."

Chris Hedges


"I preyed upon the weak, the harmless and the unsuspecting. This lesson I was taught by others: might makes right."

Carl Panzram, psychopath, serial killer

Not much is going to the real economy and the 99 percent, so it has to be going somewhere.

The creation of financial asset bubbles using the power of selective monetary inflation is 'trickle down' at its finest.

But certain assets may blurt out unpleasant truths, if they are allowed to speak.

This is not sustainable. What are they thinking?

Entitlement, indeed.

The Irresponsibles: The Bubble In Financial Assets Paper and Bernanke's Policy Errors

Here is the failure of the Fed as monetary policy and regulator with greatly expanded portfolio in one picture assuming that one remembers that stocks have risen back to all time highs.

The Fed has been stuffing its expanding Balance Sheet into the reserves of the Too Big To Fail Banks, where they and their Wall Street cronies use the funds to game the markets for financial paper and real goods.

If your goal is to support the one percent at all costs, then creating new bubbles in financial paper that they own makes perfect sense.    And as regulator the Fed promotes a lack of transparency, of financial secretiveness, of cronyism, and laissez-faire corruption that is deadly to healthy markets.

Reform is the only viable response.   And that is best measured by the levels of transparency and accountability.

But the public is no longer heard in the halls of a Congress and a White House dominated by special interest money. And so things become increasingly unsustainable.

"Based on the above data, how is the stock market fundamentally sound when earnings are collapsing? I guess the Federal Reserve is going to print profits for the S&P 500 companies.

Actually earnings are irrelevant when central banks all over the world including the Federal Reserve are juicing the markets with a sea of liquidity and where multiple expansion trumps real earnings or value."

Read the entire story at Minyanville here.

And from the RealNews:

Greenspan: No Irrational Exuberance, Stocks 'Undervalued' - The Rake's Progress

 

“I recognise that there is a stock market bubble problem at this point, and I agree with Governor Lindsey that this is a problem that we should keep an eye on....We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.”

Alan Greenspan, September 24, 1996 FOMC Minutes


"Where a bubble becomes so large as to pose a threat the entire economic system, the central bank may appropriately decide to use monetary policy to counteract a bubble, notwithstanding the effects that monetary tightening might have elsewhere in the economy.

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability."

Alan Greenspan, December 5, 1996, Speech to the American Enterprise Institute


"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

Alan Greenspan, February 23, 2004, Speech to Credit Union National Association


"Although a "bubble" in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels...

The apparent froth in housing markets may have spilled over into mortgage markets...

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications."

Alan Greenspan, June 9, 2005, Economic Outlook


"I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk."

Alan Greenspan, September 2007, The Age of Turbulence


"...the problem at its root is a flawed business model, and that business model is the product of a government regulatory decision to repeal Glass-Steagall administratively and legislatively, and to seek this tremendous concentration of power; and then the abuse of that power by the investment houses...

What we want to do is clean up the system and hold the individuals accountable, and that is what we have tried to do...But there was an understanding that if we were to seek criminal sanctions against either the institution or the most senior people of the institution, the practical impact in our regulatory environment would have been to destroy those institutions, and then structural reform would be meaningless...because the harm to our economy that would result from eliminating a Citigroup or a Merrill Lynch is enormous, and it's disproportionate to the remedy that we want.....

It was incredible. It was distressing to me how simple and outrageous it was. It wasn't so complicated that you said, "Wow, at least they're smart in the way they're doing it." It was simple. It was brazen. The evidence of it was overwhelming. It's just that it hadn't been revealed to the public, and that's why could get away with it...

Over the past decade we've wanted to deregulate, and we've said, "Let's get government out of the business of looking at these issues, and permit industry to control itself, because we can trust them." Maybe that's been a very good thing in some ways.

One of the things that is eminently clear from our investigation is that all the compliance departments, all the self-regulation is nothing. They watched it, but they did nothing. So we've got to think this through, and it's not only the financial community. There are a lot of sectors where we have said self-regulation is the answer. We've got to think about it."

Eliot Spitzer, The Wall Street Fix, March 16, 2003


"The vast majority of privately negotiated OTC contracts are settled in cash rather than through delivery.

Cash settlement typically is based on a rate or price in a highly liquid market with a very large or virtually unlimited deliverable supply, for example, LIBOR or the spot dollar-yen exchange rate.

To be sure, there are a limited number of OTC derivative contracts that apply to nonfinancial underlying assets. There is a significant business in oil-based derivatives, for example. But unlike farm crops, especially near the end of a crop season, private counterparties in oil contracts have virtually no ability to restrict the worldwide supply of this commodity. (Even OPEC has been less than successful over the years.)

Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.

To be sure, a few, albeit growing, types of OTC contracts such as equity swaps and some credit derivatives have a limited deliverable supply. However, unlike crop futures, where failure to deliver has additional significant penalties, costs of failure to deliver in OTC derivatives are almost always limited to actual damages.

There is no reason to believe either equity swaps or credit derivatives can influence the price of the underlying assets any more than conventional securities trading does."

Alan Greenspan, July 24, 1998, Testimony on the Regulation of OTC Derivatives

Hubris has no shame.

CNN
Greenspan: No irrational exuberance, stocks undervalued
By Chris Isidore
March 15, 2013

NEW YORK (CNNMoney)
Former Federal Reserve Chairman Alan Greenspan said that even with record-high stock prices, investors don't need to worry about "irrational exuberance" this time.

In fact, his current view is that stocks are still "significantly undervalued."

Read the entire article here.

Related: Michael Hudson and Pierre Rinfret: The Myth of Alan Greenspan

China's Extreme Real Estate Bubble: Globalization Is a Fraud, a Castle Built On Sand

Quite a few people know about this, but they really do not understand it.  It is a fraud that surpasses by far any in history, including the South Sea and Mississippi bubbles.

China is an extreme bubble fueled by artificially low wages and an autocratic industrial policy that is distorting the economy of the entire world.

The monied interests of the West have been riding the trend of deregulation and globalization to their personal enrichment and benefit.  But it is an empire of illusion, with a foundation of sand, held in place by the corrupting power of money.

There are some ways out of this that the Chinese leadership might take, but I suspect that their powerful oligarchs will be caught in the same credibility trap that has kept Western leaders from taking the appropriate policy actions for the good of their own people.

This is a story of betrayal, powers and principalities, of the rulers of darkness in this world, and evil in high places.   And the Anglo-American establishment has played a key part in it.

Sorry for the commercials, but the video is worth watching because it carries a visual impact that words alone do not quite capture.

China's richest woman says in a related interview not included on the aired program that the 'Chinese people are craving for democracy.'

So are the Arabic people, and the people of Europe and the Americas, who often have the illusion of choice, from amongst a series of choices allowed by technocrats acting for a ruling elite.

The Moral Hazard of the Fed's Current Policy: The Resurgence of Fraudulent Paper

"As a dog returns to its vomit, so a fool returns to his folly."

Proverbs 26:11

A reader who works in commercial real estate finance shared a warning, informed by his own private industry perspective today. This was in response to my post this morning on the Fed's policy error of indiscriminately pumping money into an unreformed banking system, without adding safeguards and provisions for its employment in productive investment rather than wealth transfer control frauds.

It is almost tragically funny to see the economic principles learned from the Great Depression applied so blindly and haphazardly as advocated by some economists and policy makers. 

It is hard to explain the realities of things to people who see the rough world of the markets through the abstractions of their theory and models.

Yes, the approach used by the government in the Great Depression favoured the stimulus of government work and investment programs for a depression and liquidity trap, and a certain amount of financial security to ease the pain.  But it would have never been so wilfully complacent about the underlying fraud that caused it in the first place as the government is today.

And austerity without reform is a form of economic suicide.  FDR came right at Wall Street and the Banks with serious reform that saved capitalism from itself, and worked for a generation to hold back its darker impulses.  This is a lesson that we have apparently forgotten.

If the Fed attempts their old fix once again, they may do what I thought was almost inconceivable, and go a step beyond mere stagflation which is bad enough, and cause an actual break in confidence, and the bond of their word, the currency. The people of the world will not be fooled forever.

As Hyman Minsky once said, and the moderns seem to have forgotten, "Anyone can create money; the problem is in getting it accepted." He should have added, except by force.

Reform goes hand in hand with recovery.

From a reader:

CDO Resurgence Could Meet Resistance From RE Investors
Law360

A recent bump in demand for collateralized debt obligations has some experts predicting an onslaught of new deals in the coming months, but real estate attorneys caution that even with a more conservative structure, CDOs could be a hard sell with those still reeling from their role in the 2008 crash.

Also, Commercial Mortgage Alerts reflected commercial mortgage backed securities issuance of $48 billion last year (2012) - up from about $33 billion (2011). Remember the Fed is buying up to $45 billion in mortgage backed bonds per month!

"I believe the Fed has succeeded in provide the banks the incentive to begin issuing fraudulent paper again, the infamous CDO's. That's the only way the banks can meet the demand for higher yielding paper given their reluctance to engage in productive investments.

They know the game now, despite the real estate lawyers who are either wrong or just propagandizing. Open-ended QE.

The banks will issue large amounts of the CMBS paper and CDO paper and probably come up with other bond schemes and even LBO's that are fraudulent and probably worthless.

They'll sell them to whomever, because if the fraud is ever revealed, it will get charged to the Fed who will buy the paper from the investors or off the banks' books for near 100 cents on the dollar.

The great fraud machine is stirring. The debt bubble is reflating.

There is no underlying strength in the economy, so the loans being securitized will not be repaid in real terms and the banks and the investors will ultimately offer them to the Fed, who will buy them at non-market prices.

What's to stop this? There's nothing stopping it.

There is no threat of prosecution for fraud. There is no shame or sense of morality.

There is only a ton of money to be earned by the banks/hedge funds/private equity with no threat of punishment for engaging in massive fraud."

This later from another reader.  To be fair, CDO's are not in and of themselves bad assets, but they do tend to operate nicely in lending themselves as a vehicle for misstating risks because of their complexity and sometimes convoluted terms.  Therefore in that spirit, Deutschebank Selling CDO's to Meet Its Capital Goals.  And Private Equity Getting Deeper into Debt as Multiples Rise as well as Hampton's Average Home Price Hits Record.  

If this is productive debt with risks well-priced then no worries.  But I wonder if we will see a return to the LBO's, bond abuses, and dodgy IPO's of the past given the current climate of loose regulation and increased pressure to make easy money.

Bernanke's Hammer: When You Have a Printing Press, Everything Looks Like a Monetary Transaction

"I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail."

Abraham Maslow, The Psychology of Science, 1966

Apparently while Maslow made this saying famous with a more elegant formulation, the original source of the image is from a Mr. Kaplan who wrote his 'law of the instrument' in 1964.

"I call it the law of the instrument, and it may be formulated as follows: 'Give a small boy a hammer, and he will find that everything he encounters needs pounding.'"

Speaking of boys and their toys, the word that has made its way across the trading desks is that the Fed's put is back on, or more colloquially phrased, while Bernanke keeps printing, certain favored classes of assets can keep going higher, without regard to fundamentals, except for significant event-driven incidents, that will be quickly papered over.

Otherwise, the dips will be shallow and the trend will be maintained.  For how long I do not know, but as the VIX shows, perceived risk is back down to low levels that we have not seen since the growing credit bubble of 2004-2007.

As an aside, before snarky propeller heads with little better arguments to make point out that the Fed does not literally 'print money,' we all know that. It is a degenerate profession that mixes a pretension to lofty equations and high science with the taunts and arguments of the schoolyard, when they act as the politicians' bullyboys.

The pity is that 'the printing press' is not the only instrument at the Fed's disposal.  After all, they are a significant regulator of the banks, and have gained even more power and influence since the financial crisis.  But as might be obvious to most, they are a terribly conflicted regulator, and given to remarkable lapses in judgement.

Monetary inflation without reform is the 'solution' that most favors the monied interests and the financial class given the extractive nature of the system as it is.

The second most favorable policy is 'austerity,' again without serious reform.  One can increase the value of their own pile of ill gotten gains relative to others through either policy.  It is no choice when you can pick the choices you give to the people, all of which are favorable to you.

Unfettered capitalism is remarkably inventive in its ability to transfer wealth and destroy value.  It commoditizes everything, and subordinates all to a place on its hellish balance sheet.

The meme on the financial markets is that there may be shallow pullbacks, or even a greater correction in response to a specific event, such as the 'fiscal cliff,' but the Fed's policy is to target asset inflation once again, through the Too Big To Fail Banks and hedge funds, and their buying of paper at non-market prices.

There is also a belief, whether it is right or wrong, that the regulators will turn a blind eye to the capping of certain commodities like gold and silver, in the name of managing them as rival currencies.  Even a folk hero like Paul Volcker has previously endorsed this as a policy.

This turning of things upside down is what has been called Rubinomics, the principle that by supporting the buying of certain select instruments such as SP futures ahead of a crisis, one can more efficiently avert a financial problem than by allowing the markets to reflect the fundamentals, and then to clean up the mess afterwards.   It's cheaper and easier he observed.

It is the belief that rather than an instrument of price discovery within the real economy, the financial markets ARE the economy, and will lead rather than follow.  And it has become a form of financial totalitarianism through the manipulation of policy and money.

Robert Rubin articulated this policy perspective while he was the Secretary of the Treasury, and he somehow persuaded Greenspan, then the Chairman of the Fed, to go along with it, shortly after the Maestro had made his famous 'irrational exuberance' speech.  Although it should be noted that Greenspan had already found that tool, and used it.  He merely took it to another level, not as a response to be used to a crisis as in the case of the Crash of 1987, but as a proactive tool of financial engineering.

And this was the genesis of the principles of new Modern Monetary Theory, which in fact is a concept as old as the hills, appearing over again with different names, and the source of much recent misfortune through several Presidencies.

"Notwithstanding anything said or done by the Congress this year, operating through trained surrogates such as Geithner, Summers and others, Robert Rubin is still pulling the economic and financial strings in Washington. The fact that there is a Democrat in the White House almost does not seem to matter. President Obama arguably has a subordinate position to Rubin because of considerations of money."

Chris Whalen, The World According to Robert Rubin

And this is the problem I have with this Modern Monetary Theory that would save the system by placing the ability to simply create money in the hands of the Treasury, to be wielded such titans of sound judgement as Robert Rubin, Hank Paulson, and Tim Geithner, with oversight perhaps by those incorruptibles and paragons in the Congress.

I do not like the banking system as it is, as you know if you frequent this Cafe.  The corruption of insider dealings, opaque deals, and unequal justice has displaced the discipline of well run markets.

The system as it is has all the problems, inefficiences, and injustice of a corrupt and self-serving oligarchy. This is not to say that is a grand conspiracy, but rather a series of unfortunate events and human tendencies, aiding the actions of a relative few.

The solution seems obvious, which is to reform the system, to provide for transparency and the rule of law, and a return to regulations and reforms that worked for decades.  And it is not to replace it with some gimmicky solution that has the same faults or worse, that will be used by same rotten, self-serving gang of idiots and careerists.

And this is why I do not even favor something more rigorous like a return to a gold or mixed metal standard now, because with the system as it is, it would surely be used as an instrument of control and repression.  A corrupt system can corrupt all.  Ask the Greeks how an external standard like the euro is working for them.  It has become an instrument of official plunder. 

The thought of the central government having the power to set official gold prices and control inventory, which they most surely would do, makes one shudder. At least in a nominally free market they can provide some refuge against financial engineering, given a wide enough timeframe.

So what about the markets, and such similar financial engineering notions as 'Nominal GDP Targeting."  Well, we can wonder how the Fed might want to actually achieve such a thing, short of going out and buying iPhones and foodstuffs.  Would it be to continually stuff money into the banks and their associated companies and camp followers, and wait for the trickle down effect?

We have seen the result of such an approach in the past.  The 'hot money' seeks beta, and that means financial paper, and frauds like collateralized debt obligations, tied to whatever hapless aspect of the real economy that is convenient, such as housing for example.

And the self same snarky economists will say, 'Where is the inflation?' and point to the very instruments of measurement of inflation that have been distorted and disabled so as not to show it, 'Chained CPI' being the most recent aberration.  And they know full well that in a situation in which the money supply is being expanded selectively and distributed through a relatively narrow source like the biggest banks, the inflation will show up selectively for quite some time, in inflated assets, bonuses and even industries like the tech sector if one can remember back to the 1990's.

I know how tempting it is for 'a little boy with a hammer' to go about pounding everything in sight.  But at some point, the adults have to come and take away that hammer, and restore the instrument to its proper usage in the service of real work and creative, productive activity.

Be careful in this market.  In markets where stocks trade like commodities, the technicals tend to be dominant because the market is a cynical game of supply and demand, squeezes in both directions, divorced from the underlying economic fundamentals. And it has been made worse by the light volumes, as few bystanders want to put their money down on the three card monte table, such as it is.

The pity is that it is strangling the flow of money to the real economy.

Max Keiser interviews Jesse Eisinger of ProPublica about his recent piece in Atlantic magazine, "What's Inside America's Banks?"

I would like to see Mr. Eisinger interviewed on the Bill Moyers show on PBS.

I doubt he could obtain a fair hearing on any mainstream media channel which prefers to stage manage their discussions in the manner of red versus blue.

SP 500 December Futures Intra-Day And General Comments

The market is playing around with these consolidation patterns that start off with a dire overnight trade, that gives way to an intra-day rally and a squeezing of the shorts.

Artificial to be sure, but likely to continue until something happens to stop it. It is unlikely that the government will intervene ahead of an election and in a fragile economy to stop the inflation of an obvious bubble. To the contrary, they are most likely deeply complicit.

This provides emphasis to our caution of waiting for a downturn to develop rather than trying to get in ahead of it. You will just feed the speculative increase.

The more the Fed and Treasury debase the global fiat currency, the higher gold and silver will rise.

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."

If the model of the former Soviet Union (empire) holds, at some point the oligarchs will start seizing hard and income producing assets for themselves using their command of fraudulent paper and a corrupt system of governance. This may already be underway when the Congress gave in to the Bankers' threats and passed TARP. I have heard that Wall Street will be taking about 8 percent of M1 as its bonus this year, despite being bailed out at enormous costs, both explicit and hidden, to the American public. Bernanke is transferring over a trillion dollars in interest earnings from savers, institutions, and retirees to Wall Street through this quantitative easing without reform and restructuring.

At some point this may erupt into a crisis with a resolution, but in the meantime it will continue to spread slowly like a wasting disease, concentrating more real wealth and assets in the hands of the politically well-connected few.

Obama is more like a business friendly Herbert Hoover than a reforming Franklin Roosevelt, and this lack of will and a vision forged by determined accomplishment against suffering, moral courage and certitude if you will, is his tragic flaw and America's misfortune.

SP Daily Chart: The Financial Engineering of Bubble-nomics

The SP is reaching a high note here. It is an attempt, in my judgement, to pump up financial assets, led by price manipulation and not any economic fundamentals or legitimate price discovery. It might go higher, but higher from here it looks like bubble territory, if we are not there already.

Overdue for a fairly stiff correction, but do not get in front of it for the sake of your portfolio. I would not underestimate the Fed's willingness to create a new bubble to attempt to counteract the effects of the last two. What else can they do given the hole into which they have dug themselves? It will take a serious financial reform and economic restructuring effort to correct this. Until then the looting continues.

There Can Be No Bubble in China and the Madness of the Nobility

Just now on Bloomberg Television Peter Levene, the former Lord Mayor of London and distinguished chairman of Lloyds of London, said that there is no bubble in China because "China is so big, their domestic markets are so big, you cannot have bubbles there."

A sincere interpretation of the theoretical underpinnings of this statement would be that the potential demand in China is so great, there can be no possible bubbles there because they are incapable of excess. Interesting theory. Perhaps the US relief effort in the Caribbean is on the right track but insufficient. They can ship their excess and foreclosed housing for the poor souls there. Think of the demand gap that exists between sub-Saharan Africa and Europe. Well perhaps not.

My God, could this be a variant of Efficient Markets Theory? Or a cousin of Too Big To Fail? Apparently the logic in 'The bigger they come the harder they fall" has been repealed.

Of course China is in a financial bubble. It has been caused by years of pegging their currency at an artificially low rate to stimulate exports, multiplied by a state banking system that acted with command and control subsidies. And of course the US can been exporting monetary inflation for years through its dollar reserve currency. Someone had to absorb it.

But it is what China does next, how they react to the bubble, how they manage the consequences of their financial engineeering, that matters. The US has been in several bubbles of late, and is handling them rather badly, as a result of their tolerance for Mad Hatters like Larry, Tim, and Ben in key policy positions.

To be fair, Chairman Greenspan came out with his own howlers of this caliber, and was accepted by many intelligent people in the States for years. In fact, a whole industry was based on ideas and falsified evidence about the impossibility of a housing bubble in the US that in retrospect seems like barking madness.

Come to think of it, both of these fine men are nobility, KBE, Knights of the British Empire. Perhaps it is something deleterious, or even contagious, that occurs when one is subsumed into nobility? Caligulitis? Did the Queen give them a concussion in the ceremony?

I suspect Lloyds is exposed rather badly to China, and m'Lord is talking his book. What is Greenspan's excuse? Whose book was he talking?

This is why the banks and financial organizations must be retrained, because they seem to be peopled by an ersatz nobility that is disposed to spectacular flights of self-serving fantasy. Come to think of it, there is room in the asylum for the government as well.

The US needs a political system that is not so amenable to soft bribery in campaign contributions, and the world needs a reserve currency that is not controlled by the Anglo-American banks. Control the currency, control the world.

And as for the bubbles that keep taking down the developing nations, well, here is their mother.







When these trends break, and they will as all Ponzi schemes do, it will be notable.