If QE-2 ends in June like it’s supposed to, and interest rates rise in the face of a weakened dollar, what do you think Timothy Geithner will be looking at? He’ll have to issue Treasury debt for the trillion-plus fiscal year 2012 deficit, and additional Treasury debt for the interest on the FY 2012 deficit—and then even more Treasury debt to cover theinterest on the interest!
Tiny Timmy’s pin-head would explode into a million pieces, if interest rates were to rise.
Benny and the Eccles Jackals are not unsympathetic to Tiny Timmy’s plight. But it’s not enough for the Federal Reserve to decree (via the Fed Funds Rate) that interest rates will not rise, in the face of rising Treasury yields. The Fed—in order to keep those yields low—has to dosomething. Something, in order to keep the Federal government funded.
Therefore, here is another one of GL’s Fearless Predictions™:
Once Quantitative Easing-2 ends this coming June, the Treasury bond purchases will be extended indefinitely—call it QE-3. The amount of each month’s purchase of Treasury bonds by the Federal Reserve will be at least $75 billion—but don’t be surprised if it’s as high as $100 billion to $125 billion. Per month.
This is the only way that the Federal Reserve and the Treasury department will be able to achieve their contradictory objectives of fully funding the Federal government’s debt, and maintaining low interest rates in order to “stimulate lending”.
So to answer the question, How low will the dollar go?
This go-around? I don’t know, but in the near-term I’d guess 73.5 on the dollar index, the euro topping out at $1.47, the yen to ¥77.50, gold to $1,450, silver $39 maybe. Maybe in the next three to four weeks, but perhaps even sooner.
In the long term? If the clowns running the circus remain in place, my guess is the dollar will soon enough hit The Big Bagel.
I have long been a fan of Jesse’s Café Américain. Jesse is a brilliant writer and a deep thinker who uniquely transcends politics, easily seeing through lies and disinformation. He has a great feel for what really matters, and the courage to speak out about it. Jesse and I have spoken before about the economy, markets and politics, and being at a crossroads once again, it was a perfect time to catch up.
Ilene: Hi Jesse, since our last interview, I would guess that we’d both agree that nothing has been done to clean up the financial system – the banks and government interconnectedness, conflicts of interest, and out-and-out fraudulent activities. Are things better or worse, or in line, with what you were expecting over a year ago?
Jesse: I think things are progressing in line with what I had expected, with the Fed and the government trying to prop up an unsustainable status quo by monetizing debt. I am still a little shocked by the brazen manner in which the financial markets are being conducted and regulated, and the news is reported in the US. It is one thing to hold a theory that says something will happen, but it is quite another to see it actually happening, and so blatantly, almost without a word of protest.
Ilene: How do you view our financial system and the global financial system now, with no progress towards any kind of reform?
Jesse: The US is now being run by an oligarchy, with lip service being paid to the electorate in allowing the people to vote for the candidates that the parties and the powers will put forward. There will be no recovery for the middle class until they assert themselves. I know I have stated this often in my tag phrase, “The banks must be restrained…” But it is the case.
There are areas of resistance to this trend on what one might call ‘the fringes of Empire,’ those client states which have been ruled by powerful cliques with the support and the protection of the US. Although certainly not a great analogy, it does remind one of…
What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis. The United States, Japan and most of the nations in Europe are absolutely drowning in debt. The Federal Reserve continues to play reckless games with the U.S. dollar. The price of oil is skyrocketing and the global price of food just hit a new record high. Food riots are already breaking out all over the world. Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time. Most Americans have no idea that a horrific economic collapse could happen at literally any time. There is no way that all of this debt and all of this financial corruption is sustainable. At some point we are going to reach a moment of "total system failure".
So will it be soon? Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare. Once this thing implodes there isn’t going to be an opportunity to have a "do over". We simply will not be able to put the toothpaste back into the tube again.
So we had all better be getting prepared for hard times. The following are 12 economic collapse scenarios that we could potentially see in 2011….
#1 U.S. debt could become a massive crisis at any moment. China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated. Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates. If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.
#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have. Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
Russell 8-0-0, Russell 8-0-0! Wherefore art thou Russell8-0-0? Deny thy dollar and refuse to fall, or, if thou spike not, be but consolidating at resistance and I’ll happily Capitulate….
If it's good enough for fair Juliet, it's going to have to be good enough for us as the Russell finally makes it over our 800 target – the last barrier that was keeping us on the bearish side. Above these lines – it's time to stop worrying and love the rally as we romanticize the deadly combination of QE2 the Obama tax cuts as: "A pair of star-crossed lovers take their life, whose misadventured piteous overthrows doth with their death bury their parents’ strife."
Of course Willie Shakespeare has nothing on Jimmy Cramer, who's pearls of wisdom are also sure to be repeated centuries from now. Last night the Bard of Wall Street sang a veritable sonnet in praise of the stock market and foretold a tale of woe for anyone dumb enough to take profits into this rally:
We got the correction this morning, Dow fell 35 points… Today's action was proof positive that you need to stop worrying and learn to love corrections… What scares me, and what should scare you, is that if you sell your stocks here, you won't be able to get back in. You should be worried about stocks getting away from you, because I think we can be on the verge of something big – something very positive. FORGET the fact that stocks have run up a lot in the last 6 months. For more than 10 years, this market has done nothing, THAT is the most important frame of reference…
What's changed? We are finally starting to see big breakouts from a slew of breakouts from several large cap companies including: CAT, UTX, FCX, SWK, CBE, ETN, CSX, UNP and so many other big industrials. Ladies and gentlemen, we have waited over a decade for this move and what do people want to do now that it has arrived? They want to sell! That's right, they want to sell. That's right. They want to dump the stocks (sell button sound effect) because they are up
I was thinking about writing something cute like I resolve to get more bullish but that would be wrong. I try, in my own humble way, to "get" the market right. That means I am not bullish or bearish but Truthish (to further botch Stephen Colbert's use of the word) and, as Buddah says: "There are only two mistakes one can make along the road to truth; not going all the way, and not starting." Confucious reminds us that there are three methods by which we may learn wisdom: "First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."
In that spirit, we will spend the day in reflection so that we are better able to start on that long road to the truth so that we will be better able to imitate the things that will work in the year to come while trying to avoid making mistakes that will give us bitter experiences.
This post is not about me – We had a fantastic year and I've already given some outlook for 2011 back on the 19th in that weekend's "It's Never too Early to Predict the Future" and our current position is short-term bearish in the Jan-April time-frame, looking for a pullback to at least 1,200 on the S&P and possibly back to 1,150.
After that, we are expecting a return to steady gains but without the irrational exuberance we're currently experiencing. So no, I am not bearish – I simply think we've gotten ahead of ourselves. Since we don't know where the rally train will stop, we have our "Breakout Defense – 5,000% in 5 Trades or Less" from Dec 11th, which were a set of very bullish, highly levered plays where a little bet can pay off a lot if we simply hold our long-established breakout levels.
How much is "a lot"? Well my GE trade idea, for example, was to sell the 2013 $12.50 puts for $1.10 (net $1.15 in ordinary margin according to TOS) and to use that money to buy the 2012 $17.50/20 bull call spread for .95, which was a net .15 credit on a $2.50 spread…
Oh boy is 2011 going to be an exciting year! Some things that I think might happen:
-Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose.
-There will be 50 days with a swing in the S&P greater than 1%. There will be 10 days where gold swings $50. There will be two days with a drop greater than 100 bucks. Most of the big moves will be down moves. Bonds will not be spared the volatility.
-Gold will be higher a year from now but off its peak. At some time in the fall, gold will be near 1,800 and the New York Times will do a front-page story that gold is on its way to 2,000. That will be the high point of the year.
-Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic. Increasingly, it will become understood that money does not hold value. Copper will do a better job of storing value then a Treasury Bond.
-The US bond market is in for a heck of a year. The 30-year will trade at BOTH 3% and 5%. Higher rates will come early in the year, then the deflation trade will come back into vogue.
-Spain will be the next sovereign debtor that falls prey to the market. This will happen before the end of the 1st Q. The package to bail them out will exceed $500b. This will exhaust the EU resources. There will be very high expectations that contagion will then move to Italy. That will not happen in 2011 (2012?) The European Central Bank will step up to the table (finally) and support the market for Italy. Sometime between March and June Italian bonds will be a great buy.
-The IMF will contribute $125b to the Spanish bailout. The US portion
Baruch complains that his thoughts about QE2 were indirectly misrepresented by James Suroweicki in The New Yorker (THE BIG UNEASY). And if the line describing the market as an "undead homicidal zombie" is used, Baruch should at least get a link and credit, (taken out of context though it was). While Baruch’s article, Quantitative Queasing expressed reservations, he was most certainly not "hysterical" but rather reflective. In fact, I posted it in an attempt to balance out more critical articles. - Ilene
James Suroweicki is using Baruch’s (rather good) line, the “undead homicidal zombie market” as grist to his anti-anti QE2 mill.
What’s most striking about the attacks on QE2 is how hysterical they are. People aren’t just suggesting that the Fed’s policy—which is quite modest relative to the size of the U.S. economy—might be ineffective or mildly inflationary. Instead, they’re accusing the Fed of “injecting high-grade monetary heroin” into the system, pursuing a policy that “eviscerates” the middle class, and potentially giving birth to an “undead homicidal zombie market.”
The main problem with this of course, is that this last bit never happened. No-one ever accused the Fed of potentially creating an undead homicidal zombie market.
“I’m not saying we’re in an undead homicidal zombie market,”
And there we could let it lie.
Although to be fair, I did add “though we may be” as quite frankly I was not very sure of anything at that particular moment. Communicating this lack of certainty was the point of the post, which was about feeling confused and worried. But nevertheless, in the offending line above, Baruch was trying to stop going too far down the path of a metaphorical flight of fancy about undead cats. To avoid, if you like, hysteria.
So James S. has it completely arsy-versy. Clearly he hadn’t actually read Baruch’s post, and by the way James, in the unlikely event you ever read this one, if you do choose to misquote me disapprovingly the least you could do would be to drop us a link, no? Probably you have an outdated editorial policy that prevents you from doing so, but still, this is the 21st century.
Calling one’s opponents “hysterical” is, moreover, quite a cheap rhetorical shot,…
The Treasury market is rebounding Thursday. Yields have fallen from a six-month high, reached Wednesday, but are still up from where they were earlier in the week. Yields on the 10-year are trading at 3.23% today.
This is not what the Federal Reserve had in mind when the central bank announced the plan to purchase $600 billion in Treasury bonds — a move that was hoped would lower rates and stimulate the U.S. economy.
Of course, there are many critics of the Fed who say the second round of quantitative easing is wrong and even harmful. "The failure of QE2 doesn’t worry me, it’s the success that worries me," says Vitaliy Katsenelson of Investment Management Associates.
"I think it’s criminal," he tells Aaron in the accompanying clip. "They’re forcing people that should not be taking risk to take risk." The fear is the Fed is repeating its past mistakes — helping to build an asset bubble that will eventually burst with grave consequences.
The deficit hawks are circling, hovering over QE2, calling it just another inflationary bank bailout. But unlike QE1, QE2 is not about saving the banks. It’s about funding the federal deficit without increasing the interest tab, something that may be necessary in this gridlocked political climate just to keep the government functioning.
On November 15, the Wall Street Journal published an open letter to Fed Chairman Ben Bernanke from 23 noted economists, professors and fund managers, urging him to abandon his new “quantitative easing” policy called QE2. The letter said:
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. . . . The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
Many of the people on this list have been warning about bond vigilantes while also comparing the USA to Greece for several years now. Of course, they’ve been terribly wrong and it is entirely due to the fact that they do not understand how the US monetary system works. . . . What’s unfortunate is that these are many of our best minds. These are the people driving the economic bus.
The deficit hawks say QE is massively inflationary; that it is responsible for soaring commodity prices here and abroad; that QE2 won’t work any better than an earlier scheme called QE1, which was less about stimulating the economy than about saving the banks; and that QE has caused the devaluation of the dollar, which is hurting foreign currencies and driving up prices abroad.
None of these contentions is true, as will be shown. They arise from a failure either to understand modern monetary mechanics (see links at The Pragmatic Capitalist and here) or to understand QE2, which is a different animal from QE1. QE2 is not about saving the banks, or devaluing the dollar, or saving the housing market. It is about saving the government from having to raise taxes or cut programs, and saving Americans from the austerity measures crippling the Irish and the Greeks; and for that, it…
WealthTrack with Consuelo Mack aired this rare interview over the weekend with David Einhorn of Greenlight Capital. Mr. Einhorn describes what happened to the US financial system that resulted in the current crisis and how many of these problems persist. Einhorn also covers his broader investment outlook. He says QE2 will not succeed, he would not own any of the big banks and explains his outlook on gold and why gold represents real money. He also goes into detail regarding his current portfolio, what he likes, what he dislikes and why it is more difficult to find good long positions (than shorts) in this overvalued market:
First S&P downgraded the UK, now it's the EU's turn.
Long-Term Rating On Supranational Institution The European Union Lowered To 'AA' On Brexit Referendum; Outlook Stable
The European Union (EU) supranational borrows on the capital markets to lend to member states and certain other governments on a back-to-back basis. The long-term rating on the EU partly relies on the capacity and willingness of its 28 members to support it. We currently rate the EU at 'AA'.) OVERVIEW
After the decision by the U.K. electorate to leave the EU as a consequence of the June 23 consultative...
Note: This commentary has been updated to include this yesterday's release of the May data for Real Personal Income Less Transfer Receipts.
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.
There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:
By Jacob Wolinsky. Originally published at ValueWalk.
Care.com Inc (NYSE:CRCM) is soaring this morning up about 39 percent at the time of this writing – why? Google Inc. (NASDAQ:GOOGL) just made a big capital injection into the family care company. Below is that the analysts are saying about the latest news.
Yesterday, Care.com announced that Google Capital made a $46.35mm investment in the company (versus the company’s market capitalization of $268.4mm at the close). The transaction marks Google Capital’s first investment in a public company and makes it Care.com’s largest shareholder. A portion of the proceeds will be used to repurchase $30.5mm worth of shares from Matrix partners. In addition, Laela Sturdy, a Partner at Google Capital, will gain a seat on Care.com’s Board of Directors. We view the in...
Italy’s third largest bank by assets, Banca Monte dei Paschi is on the death bead. It’s been there since mid-2014.
Italian banks in general have €200 billion in non-performing loans. They have another pile of troubled loans that are late just some of the time.
To address the problem, Prime minister Matteo Renzi hatched a half-baked scheme dubbed “Atlas”. The idea was to leverage a mere €5 Billion to address a €200 billion hole.
As predicted, “Atlas” quickly died. Now, Renzi wants to use Brexit as an excuse to use state funds to bail out Banca Monte dei Paschi, but German chancellor Angela Merkel shot down that idea on Wednesday.
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I have mixed feelings about Brexit today. Clearly the European institution need reforming. The addition of so many countries in the last 20 years has created a top heavy administration. The Euro adds more complexities to the equation as the ECB policies cannot fit every country's problem. On the other hand, a unified Europe has advantages as well – some countries have benefited from the integration.
For Britain, it's hard to say what the final price will be. My guess is that Scotland might now vote for independence as they supported staying in Europe overwhelmingly. Northern Ireland might be tempted to leave as well so possibly RIP UK in the long run. I was talking to some French people and they were saying that now there might be no incentive for France to stop immigrants from crossing over to the UK like they do now and simply allow for travel there and let the UK deal with them. The end game is not clear to anyone at the moment....
One week ago, when bitcoin first crossed above $700 on the seemingly insatiable Chinese buying which we forecast last September (when bitcoin was trading at $230) would take place as a result of China's capital controls (to much pushback by the "mainstream" financial media), we tried to predict what may happen next. We said that "it could go much higher. That said, anyone who bought last September when the digital currency was trading at $230 may be advised to take some profits, and at least make...
After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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