SP 500 and NDX Futures Daily Charts - Correctamundo

The equity markets corrected today after an extremely overbought run up last week, marked by an obtuse interpretation of the Non-Farm Payrolls report on Friday.

The NDX took it on the chin, but the SP 500 hung stubbornly on to the more aggressive uptrend.

VIX climbed, but did not give any definite signal.

Let's see if this was just a correction, a one day wonder, or something more substantial.

The Triumph of Spectacle

“Sadism dominates the culture. It runs like an electric current through reality television and trash-talk programs...

Washington has become our Versailles. We are ruled, entertained, and informed by courtiers -- and the media has evolved into a class of courtiers. The Democrats, like the Republicans, are mostly courtiers.

Our pundits and experts, at least those with prominent public platforms, are courtiers. We are captivated by the hollow stagecraft of political theater as we are ruthlessly stripped of power. It is smoke and mirrors, tricks and con games, and the purpose behind it is deception...

A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.”

Chris Hedges, Empire of Illusion: The End of Literacy and the Triumph of Spectacle


"As flies to wanton boys are we to the gods, They kill us for their sport."

William Shakespeare, King Lear

They would be as gods, and so revel in violence and death which, unable to create life, is their greatest power.   These will live and prosper, and those will live miserably, and die.  And the winners will owe their allegiance to the system.

They seek to master death with their illusions.  The prospect of their own death drives their fears into madness.

And they hide their nakedness with spectacle, and fill their empty being with excess, fads, and distractions.

Welcome to the Hunger Games. And may the odds be ever in your favor.

“Why do you think we have a winner?,” Snow asks while cutting a white rose.

"What do you mean?,” Seneca asks. “I mean, why do we have a winner?,” Snow repeats, before pausing. “Hope.”

“Hope?,” Seneca replies slightly bewildered.

“Hope. It is the only thing stronger than fear. A little hope is effective, a lot of hope is dangerous,” Snow declares.

“A spark is fine, as long as it’s contained. So, contain it,” Snow warns.

Suzanne Collins, The Hunger Games

Net Asset Value Premiums Of Certain Precious Metal Trusts and Funds

Not exactly a crowded trade, and enthusiasm for silver seems subdued.

Gold made new highs in the Japanese yen.

Each currency takes its turn on the downward spiral of competitive devaluation and printing. The central bankers which to 'coordinate' this more closely, and silence gold as best they can.

They can only 'print' paper gold, and only for so long.

Weekend Reading: The Touchstone of Faith Is Love

For all the people of God, love is the touchstone of our faith, the way to know if what we believe is with Him, or with something else, if we are walking with Him, or with something else, if the one who speaks is speaking for Him, or for something else.

Love cannot be pretended for too long, but always shows itself to be genuine or not. It does not speak with hate or anger or fear, but with a fullness of existence that can only be counterfeited but never achieved by that which is opposed to His existence.

When you are in doubt or confused, look for the light of love. And if it is not there, if it is wrapped in the hardness of pride disguised as 'love,' then you will know what it is.

Love is not easy; it is not a natural state. It seems weak and foolish, and even despicable to the fallen. 

It is a conscious disposition of the mind and the heart, an act of will. It is a habit of acting and looking at things, that becomes easier and more comfortable as we carry that yoke on our weaker nature and our emotions.   Over time that yoke becomes light, and a light to steady us in life's darker moments. But it is never easy or natural.

This is how the people of God may judge themselves and their own actions along the way. If there is no love evident in the words and the heart, then the words and the actions are not of God, but of something else.

Love is not what we do, but how we do what we do.  Love is found in the most practical things, not in grand gestures and sacrifices, but in the small daily acts, done lovingly, and with care, for His sake.  It is how we carry our cross, not in front of a crowd, but in the quiet, little things. 

We do not need to hate and reject the world, and despise His creation. They are a gift from God, to which we bring our good use and order, and wonder. We can work with His gifts lovingly, and not abuse them from self-absorption and greed.

It is not the world that is a source of evil, but the willfulness of our hearts, hardened with pride. Only love is productive.  And the pity is, not to love.

God is the essence of all existence, which is love.

"If I speak in the tongues of mortals and of angels, but do not have love, I am a noisy gong or a clanging cymbal. And if I have prophetic powers, and understand all mysteries and all knowledge, and if I have all faith, so as to move mountains, but do not have love, I am nothing. If I give away all my possessions, and if I hand over my body so that I may boast, but do not have love, I gain nothing.

Love is patient; love is kind; love is not envious or boastful or arrogant or rude. It does not insist on its own way; it is not irritable or resentful; it does not rejoice in wrongdoing, but rejoices in the truth. It bears all things, believes all things, hopes all things, endures all things.

Love never ends. But as for prophecies, they will come to an end; as for tongues, they will cease; as for knowledge, it will come to an end. For we know only in part, and we prophesy only in part; but when the fullness comes, the partial will come to an end.

When I was a child, I spoke like a child, I thought like a child, I reasoned like a child; when I became an adult, I put an end to childish ways. For now we see in a mirror, dimly, but then we will see face to face. Now I know only in part; then I will know fully, even as I have been fully known. And now faith, hope, and love abide, these three; and the greatest of these is love."


“You shall love the Lord your God with all your heart and with all your soul and with all your strength and with all your mind, and your neighbor as yourself.”

A Secret History: The Ku Klux Klan

"The new generation has to hear what the older generation refuses to tell it."

Simon Wiesenthal


“Man’s capacity for justice makes democracy possible; but man’s inclination to injustice makes democracy necessary.”

Reinhold Neibuhr


"Keep America American."

Ku Klux Klan slogan from the 1920's

Most nations have things in their past which they wish to forget.

And they obscure them in a mythos, with a false memory of their own self-righteousness.

But to forget them is to invite their return, in words that are echoes of the past, and the objectification of 'the other' as they choose to define them.

Like financial frauds, the sins of the past keep coming back with new names, but the same old words and false propositions.

Gold Daily and Silver Weekly Charts - The Failure to Reform

"But there is a sort of 'Ok guys, you're mad, but how are you going to stop me' mentality at the top."

Robert Johnson

Audacious oligarchy.

This will not end well.

And a preview of Matt Taibbi and Bill Moyers discussing Why We Can't Let the Banks Off the Hook.

Ignoring such pervasive white collar crimes, which are still ongoing by the way, creates a climate of extreme moral hazard, festering corruption, and teaches felony by example.

I think they give Obama, the regulators, and the Congress far to much credit in ignoring these crimes 'for the good of the system.' It is all about careerism, the credibility trap, and going along to get along.

They cannot reform the system because they are the system, and the political and financial elite are doing just fine with the system the way that it is, thank you very much. They do not want things to change.

SP 500 and NDX Futures Daily Charts - Fragility of Vain Illusions

Fame, power, and gold, are loved for their own sakes — are worshipped with a blind, habitual idolatry. The pageantry of empire, and the fame of irresistible might, are contemplated by the possessor with unmeaning complacency, without a retrospect to the properties which first made him consider them of value.

It is from the cultivation of the most contemptible properties of human nature that discord and torpor and indifference, by which the moral universe is disordered, essentially depend.

So long as these are the ties by which human society is connected, let it not be admitted that they are fragile.

Percy Bysshe Shelley

The employment number was worse than expected, and the unemployment rate ticked up.

The equity markets, aka the cash cow entitlement of the one percent, ran higher because of extensive revisions to past months.

This will not end well.

Gold Daily and Silver Weekly Charts - Bill Gross Says 'Buy Gold'

"Still, investors cannot simply surrender to their entropic destiny. Time may be running out, but time is still money as the original saying goes. How can you make some?...

Transition from financial to real assets if possible at the margin: buy something you can sink your teeth into – gold, other commodities, anything that can’t be reproduced as fast as credit."

Bill Gross, PIMCO - Credit Supernova

Non-Farm Payrolls report tomorrow.

I will try and take a close look at them as January is known as a volatile month. Unemployment claims came in on the high side this week, but that really does not imply too much for the monthly jobs report given the huge adjustments that are made for seasonality and imaginary job creation. The corruption in the US stock market is still appalling.

SP 500 and NDX Futures Daily Charts - UPS Guides Lower

UPS, which is America's largest package delivery company, guided lower for the year.

Non-Farm Payrolls tomorrow.

William K. Black's Public Eye Speech at Davos - 'Mankiw Morality'

"Greed, I say, is a great flood; it is a whirlpool that sucks a person down, a constant yearning, always seeking a hold, continually in movement."

Siddhārtha Gautama Buddha


“Just as it was in the days of Noah, so will it be in the days of the Son of Man. People were eating, drinking, marrying and being given away in marriage, up to the very day Noah entered the ark. Then the flood came, and swept them all away."

Luke 17:26-27


"What is the appropriate behavior for a man or a woman in the midst of this world, where each person is clinging to his piece of debris? What is the proper salutation between people as they pass each other in this flood?"

Leonard Cohen

Gold Daily and Silver Weekly Charts - Rally on FOMC Day

Gold and silver advanced today on much weaker than expected GDP report, and with a negative deflator, a green light for the Fed to keep growing that balance sheet.

I suspect they will break through the five trillion level before this leg of printing is over.

Jobs Report on Friday. Tomorrow is the end of the month.

SP 500 and NDX Futures Daily Charts - Negative Data and a Pullback

The GDP report for 4Q 2012 was negative today, and even that with a negative chain deflator.

Stocks pulled back after the Fed did nothing new.

Jobs Report on Friday.

The uptrend is not yet broken in stocks. The overbought condition was getting ridiculous.

FOMC January 2013 Statement

"The foundations of the Maginot Line were the war cemeteries of France."

Vivian Rowe, The Great Wall Of France, 1959

Nothing really new in the FOMC statement, but we have to view this in the light of the shocking revelation from the recently released Fed Notes that they failed to see the crisis coming even in the days before the financial system teetered on collapse.

These are old and tired generals, fighting new wars with the old tools and tactics.

Until the banking system is reformed, the Fed will continue to attempt to prop it up, and stand by doing little else while the real economy stagnates. Except perhaps to foment yet another imbalanced, unstable bubble in financial instruments.

Press Release

Release Date: January 30, 2013

For immediate release

Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.

Employment has continued to expand at a moderate pace but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement.

Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.

Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Obama Administration's Failure to Reform Wall Street and Investigate Fraud

No matter what progressive words he wishes to say, this is 'the tell.'

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Premiums remain almost shockingly thin even as gold and silver rally.

Gold has not quite returned to its pre-end-of-year smackdown that began in December of last year, needing to hit 1720 for that to happen.

Commentary on the precious metals has been riding the 'downward spiral of dumbness' in the past week, as gold bears become emboldened and begin to abandon mere negativity in favor of sheer ridiculousness.

What was most suprising this morning was not the negative GDP print, but the negative chain deflator that went along with it, and facilitated a 'better' GDP number than we would have otherwise seen. That is, instead of the expected 1.6% chain deflator as an indication of inflation, the negative deflator that was used was -0.6%.  Otherwise the real GDP number printed would have been quite a bit worse.

I don't think we have seen a negative deflator since the Great Crash of 2008, and not often before that either.

Still I doubt they will take this one seriously since they can blame it on Hurricane Sandy, uncertainty over the fiscal cliff, and the dockworkers strike.

Chain deflators with plenty of leeway are a wonderful way to overstate growth, hide decay, and mask the effects of monetary inflation. Unfortunately they cannot provide real growth, economically viable jobs, and a decent standard of living. Only reform and transparency can do that for the West.

So far the metals are still in a broad trading range. I have some optimism that we will see a breakout, and a new rule set for a cup and handle in the face of extreme market pressure. But one thing at a time.    Do not expect this to be easy as the currency war intensifies.

Gold Daily and Silver Weekly Charts

Amazon booted its earnings and revenues after the bell, and guided lower.

Jeremy Siegel says to avoid gold and silver and take the safety of stocks as the financial paper cheerleaders had their pom-poms out today. Because 'stocks are cheap' and 'going much higher.' Risks? What risks?

FOMC tomorrow. Jobs on Friday.

If they cannot take gold down lower this week, the shorts may be in for a rough time.

SP 500 and NDX Futures Daily Charts - Yowza Yowzer Get Yer Hot Stocks

Shades of bubbles past, Jeremy Siegel was the 'closer' on Bloomberg TV and he was pounding the table for stocks. He called for Dow 15,000.

Amazon missed earnings and revenues after the bell. And they lowered sales guidance.

Consumer confidence plunged today.

The SP Futures managed a close over 1500, and VIX retreated.

FOMC tomorrow, and Jobs Report on Friday.

Kitco Corrects Their Gold Lease Rates Error

Kitco has corrected the significant error in their gold lease rates.

They corrected it the day after gold options expiration.

Before

After

US Consumer Confidence Plunges

What is wrong with the little people, these takers and fakers? Confidence has never been better on Wall Street.

Look at the VIX and the SP 500, and booming home prices in the Hamptons. Get with the program.

Lloyd Blankfein just had a $21 million pay day. He's filled with confidence. And Jamie Dimon is walking on water.

Fraud and deceit will continue until confidence and trust improve.

MarketWatch
Consumer confidence drops in January
By Ruth Mantell

WASHINGTON (MarketWatch) -- A gauge of consumer confidence dropped in January to the lowest level since November 2011 on lower expectations and gloomier views of the present situation, according to data released Tuesday.

The Conference Board said its consumer-confidence index dropped to 58.6 in January, missing analysts' estimates of 64.3, from an upwardly revised 66.7 in December.

A prior December estimate pegged the level at 65.1. "Consumers are more pessimistic about the economic outlook and, in particular, their financial situation," said Lynn Franco, economic indicators director at the Conference Board...

Gold Daily and Silver Weekly Charts - Comex Option Expiration - Kitco Lease Charts Wrong

Today was an option expiration for silver and gold on the Comex.

Speaking of lease rates, Kitco's numbers do not even agree with their very graphic lease rate charts.

Nice mistake to make on the option expiration.

I made a calendar that shows the Comex gold and silver expiration dates here.

Tomorrow begins a two day FOMC meeting. Jobs Report on Friday.

SP 500 and NDX Futures Daily Charts

VIX had a bit of a pop today, but nothing significant yet.

There is a two day Fed meeting this week.

Gold and Silver Option Expiration Calendar for 2013

I put together a calendar for the gold and silver option expirations based on the Comex contract information.  I looked for one with the usual suspects and could not find it.

The Comes does not have any silver options listed yet for October and November.

I will try and update any changes which they make as they year goes on.

Much Ado About Lease Rates - FOMC and Option Expiration

Here is the update from the LBMA on the Gold Forwards.

It shows little change, and even a slight increase today Monday.

The LBMA do not update LIBOR in real time, but do so with a lag. 

I did not see anything untoward in the LIBOR rates on another site, so I suspect that Kitco will be revising their charts sometime.

The only negative I see for gold is that this is an FOMC week.  And of course today is the February Option Expiration on the Comex.

The expiration date for the February 2013 options contract for Copper Option (HX), Gold Option (OG), and Silver Option (SO) is Monday, January 28, 2013.

I would not mind hearing an explanation for those Kitco gold lease prices chart from either Kitco or Sharefin.

Kitco Shows Recent Plunge to Negative In Gold Lease Rates

Here is what they are showing.

I am wondering if Kitco did not use a bad LIBOR quote in calculating this.

As you may recall the lease rate calculation is LIBOR - GOFO (Gold Forward Offered Rates) = Lease Rate.

A drop in lease rates like this might presage a sell off attempt in gold, or an influx of leased gold to meet some short term delivery pressures or demands for allocation from unallocated sources.

Here is something I wrote about this in the past, when lease rates had dropped.

I suspect Kitco may have miscalculated the data by using a bad LIBOR number, but lets see what happens tomorrow, and I'll do the math myself if they do not correct this.

PS. Later, a reader informs me that he thinks they did miscalculate.  I will give it a day.

When I Despair...

When I despair, I remember that all through history the ways of truth and love have always won. There have been tyrants, and murderers, and for a time they can seem invincible, but in the end they always fall. Think of it. Always.

Mahatma Gandhi

And remember, no matter how bleak things may appear, the Dude abides.

Like the rug, he really does tie the room together.

Bill Moyers: The Senate's $500 Million BiPartisan Corporate Welfare Gift to Amgen

Mitch McConnell Republican from Kentucky, Max Baucus Democrat from Montana, and Orrin Hatch Republican of Utah.

"...we have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men. It is not merely that at present the rule of naked force obtains almost everywhere. Probably that has always been the case.

Where this age differs from those immediately preceding it is that a liberal intelligentsia is lacking. Bully-worship, under various disguises, has become a universal religion..."

George Orwell, Review of Bertrand Russell's Power: a New Social Analysis in Adelphi Magazine, January 1939

Edward R. Murrow: Good Night, And Good Luck

"All I can hope to teach my son is to tell the truth and fear no man...

If none of us ever read a book that was "dangerous," had a friend who was "different," or joined an organization that advocated "change," we would all be just the kind of people Joe McCarthy wants...

The only thing that counts is the right to know, to speak, to think — that, and the sanctity of the courts. Otherwise it's not America.

No one man can terrorize a whole nation unless we are all his accomplices."

Edward R. Murrow, speech to his CBS News staff, 1954


“The term propaganda rings melodramatic and exaggerated, but a press that—whether from fear, careerism, or conviction—uncritically recites false government claims and reports them as fact, or treats elected officials with a reverence reserved for royalty, cannot be accurately described as engaged in any other function.”

Glenn Greenwald

James Turk and Chris Martenson: Central Banks Losing Gold and Silver Price Suppression

Source link here.



Related: World Plunges Into Currency War - BusinessWeek

Gold Daily and Silver Weekly Charts - No Need for Safety Buy Stocks

That seems to be the talking points memo for financial television this week.

Grab a seat on the miracle market before they are all sold out.

The market is utterly overbought and VIX is complacent. But it can stay that way in light volumes. The market can remain irrational longer than you can remain solvent.

I have marked the trendline on the last chart along with the money flows and RSI.

The real economy can no longer afford to tolerate its corruptly inefficient financial system. That is the long and short of it.

And at some point, people will realize this, and something will happen.

SP 500 and NDX Futures Daily Charts - Fraud Will Continue Until Confidence Returns

I would be very careful about getting in front of this market while volumes remain low and the Fed keeps puffing up the banks with easy money.

The fairy tale being told is that the recovery has the market giddy, so it is exiting safe havens (like gold of course) and seeking risk plays for more upside.

Volumes remain thin and there is the tell. There is also a divergence between the SP futures and Tech 100.

Next week there are more Treasuries coming to market so we *might* see a pause, but this will not be safe to short except as a hedge on longs until there is a clear trend break. No need to be greedy. Wait for things to develop.

Alan Blinder: The Fed Should Pay the Banks Negative Interest Rates on Reserves

As I said to the reader who forwarded this, 'you have no idea how much this admission by Blinder means to me.'

This is not the first time he said this, he is now repeating it again more publicly and for the record. That means he sees what is happening and is worried about it. And it is something that is probably not being discussed in Davos, except behind closed doors, and especially not with the financial media's Wall Street spokesmodels.

This is a particular moment to be savored, because at the time that the Fed started paying interest on bank reserves it held, there was quite a bit of hoopla and browbeating by 'professional economists' and some NY Fed people, and their media mouthpieces, about my own interpretation of what it meant, and how those reserves would function, and what they would and would not do. And as I recall a few brave politicians were also rasing the same concerns, only to be beaten down by 'experts.'

The Fed has been pussyfooting around the credibility trap of their own policy failures for quite some time.  This is hard for an academic to do, because so much of their personal currency is based on 'reputation' and the back-scratchers club.

So now the hacks can argue with Alan Blinder, former Vice Chair of the Fed. They may disagree with his policy judgements, but they might find it harder to dismiss his argument with the usual 'he doesn't understand the banking system' approach which they tend to use when they wish to silence dissent.  I took quite a bit of flack for this on the economic blogs comment sections and was fairly disgusted by what looked like a disinformation campaign.

I am no great fan of Blinder, and his own rationalisation of the Fed's actions and the bailout are disturbing. But I will use what I can get and he explodes at least one of the monetary myths that a number of people had questioned, only to be shoved aside.  The actions of the Fed have been all about bailing out the Banks, and in their fear and greed the politicians have gone along with them, both in the US and in Europe.

Paying no interest, or even negative rates on reserves, makes some sense, in motivating the banks to not to sit on their cash and gamble with it in the markets, and prop up mismarked assets, but to find some productive uses for it.

My only concern is that in this currently corrupt system the failure to pay interest or to even charge a fee for it would drive even more 'hot money' into financial asset bubbles in the US and overseas rather than productive loans and real investments in support of growth and recovery and real wages.  This is one of the great drawbacks of the repeal of Glass-Steagall. 

On the bright side, negative interest rates, including negative real rates, are a stimulus for gold which is money in its own right and on its own standing, as my friend Hugo Salinas-Price is often wont to remind us.  And this admission by Blinder gives me the ability to feel even more confident in the rest of my forecasts, provided the government does not do something stupidly draconian out of panic.  Gold is going to go significantly higher in price.  The big players are already positioning for it.

And if these negative rates were applied to what is paid to individual savers and depositors, then that would be even more of a travesty that what is occurring today as prudence and honesty are penalized by policy originating from the monied interests and their public servants. This is a real concern given the lack of serious reform of the system.

It would be like strafing the lifeboats, which is something some financial engineers would do if given the opportunity and the motivation in support of their increasingly convoluted and self-serving policy errors.  

CNNMoney
Making the Case for Negative Interest Rates
By Allan Dodds Frank
25 January 2013

Former Fed official Alan Blinder talks about how to fix the economy, where the next crisis will come from, and how scared investors should be.

FORTUNE -- The nation's biggest banks have been nursed by the Federal Reserve way too long, former Federal Reserve Vice Chairman Alan S. Blinder said Thursday as he kicked off the tour for his new book, After The Music Stopped: The Financial Crisis, The Response and the Work Ahead.

The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits – in effect charging a fee – banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers.

The book, the 20th by the liberal Democrat economist who is the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University, defends the U.S. government bailout prompted by the financial crash in the fall of 2008 as a job well done, while critiquing it as a misunderstood rescue that could have been done more cleanly. Blinder tries to adopt the perspective of middle class Americans who remain angry that the big banks stayed afloat with public money while doing little to help their retail customers during the bail-out...

Sparing no sitting ducks, Blinder blasts former President George W. Bush, former Treasury Secretary (and Goldman Sachs (GS) co-CEO) Henry "Hank" Paulson and their successors – President Barack Obama and Treasury Secretary Timothy Geithner - as communications failures whose collective silence about what was really going on amounted to public disservice. (And where wasMr. Blinder when all this was happening, from Greenspan to Bernanke? - Jesse)

While citizens fail to understand the positive role the Federal Reserve played [sic - literally], Blinder also says people have a right to be angry about the ongoing practice that encourages banks to keep their deposits out of general circulation.  (The Fed's failure as bank and market regulator is epic - Jesse)

"I have been advocating – and have not yet quite convinced (Federal Reserve Chairman) Ben Bernanke, although I am still working on it - that the Fed should lower, first to zero and then probably to negative, the interest rate it pays banks for holding reserves at the Fed," Blinder said Thursday. "When I want to be polemical about it, I say things like: 'My bank pays me one basis point on my checking account. Why are you paying my bank 25 basis points on their checking account?...'"

The Payoff: Why Wall Street Always Wins - Capture, Careerism, and Corruption

The reason why no major Wall Street executives are being investigated and indicted, and why the manipulation of markets continues on, is part credibility trap and the rest capture, careerism, and corruption.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.




Jeff Connaughton was Senator Ted Kaufman's chief of staff in January 2009.  After Ted's Senate term ended on November 14, 2010, he retired from politics, and now lives and writes in Savannah, GA, and speaks out about the failures to address the financial crisis.

In 2000 he had co-founded a lobbying firm specializing in university research for The Science Foundation, Quinn Gillespie & Associates LLC.  This helped to broaden his understanding of the political process as it had been evolving.

Prior to that he served in the White House as Special Assistant to the Counsel to the President in 1994-95, where he worked on a variety of legislative, regulatory and constitutional issues.

He previously served from 1988 to 1991 on the staff of then Chairman Joseph R. Biden, Jr., of the Senate Judiciary Committee.

Gold Daily and Silver Weekly Charts - Upping the Chances for Inflation

Intraday commentary on money and the metals and Bernanke's Hammer here.

And now the Swiss are asking, "Wo Ist Das Gold?"

"Muss die Schweiz ihr Gold aus dem Ausland heimholen? Der SVP-Initiative, die das fordert, fehlen nur noch 10'000 Unterschriften. Die SNB könnte in Teufels Küche kommen."

SP 500 and NDX Futures Daily Charts - Divergence Compliments of Apple

There was a big divergence today between Tech and the SP compliments of Apple.

After the bell AT&T missed earnings, and Microsoft missed revenues. Starbucks was in line.

Intraday commentary in which I discuss the policy errors of the Fed in relation to consciously funneling monetary stimulus through financial firms and assets, bubble-wise.

I think the market is greatly overbought and would see a correction, but VIX remains extraordinarily low, so it would be shallow or at most a 'wash and rinse.'

It will take a macro event to break this ramping, and it might not take all that much given the thin volumes.

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.