Domestic Myopic Excuses – The Worst is yet to Come
To try to explain the markets and how there can be a rising stock market with rising bonds analysts characterize this as a US monetary experiment of the past four years, which has been caused by the Fed’s endless monetary injections (and pent up inflation expectations) while the bond rally has been due to quality collateral mismatch and scarcity with the shadow banking system funding via reserve currency “deposit-like” instruments such as TSYs. If this were true, then why is gold declining?
This is the typical domestic explanation that is so far off base and can be reduced to simply opinion. Where is the proof? If it were a closed system, it would be impossible to increase the money supply with rising stocks and bonds. It just would be impossible. There could be NO pent up inflation with ALL commodities declining.
I have warned that the extremely low interest rates have forced capital to seek a return in equities. With dividends at 5-7% in good stocks, 0.5% is not very appealing for pension funds or investors.
The same thing took place in 1923. Jesse Livermore turned bullish the week of November 12th, 1923. The Wall Street Journal was bearish and accused Jesse of trying to influence the Presidential elections because they said he was friends with the President. When the Wall Street Journal was proved dead wrong, they refused to ever quote Jesse again.
Time Magazine reported November 12, 1923:
“Then came the turn. Late one afternoon, U .S. Steel revealed a fine quarterly statement, declared an extra dividend of 1/4. Next morning, by curious coincidence if it was a coincidence the redoubtable Jesse L. Livermore announced, apropos of nothing in particular, that he had turned bullish, that with agricultural recovery and a European settlement near at hand profits lay on the buying side, and that next year should be prosperous without becoming a boom.”
Indeed, stocks were undervalued and you could earn more in dividends than in the bank. This has nothing to do with the Fed’s monetization since the bulk of QE1 and QE2 went overseas and the Euro is collapsing. Even China lowered their Euro exposure to before 7%. The dollar is being absorbed internationally and those stuck in domestic analysis cannot see anything beyond the one-dimensional domestic cause and effect.
Sorry once again, but the US is by no means way out of line. All this talk, talk, talk, about Fed monetization and pent up inflation that has not materialized, has other explanations when you look at the world as a single entity. We may yet see a bubble in the US into 2015.75 if we in fact see the dollar RISE as did the yen going into 1989. A rising dollar will increase the profits for foreign investors and drawn in even more capital globally creating massive capital concentration and global civil unrest. The Fed will go nuts and be forced to raise interest rates fearing a bubble and that will blow out the deficits and the entire system will collapse 2016-2020. So hold on to your socks. This is likely to be a wild ride.
August 7th – ECM
The August 7th turning point is starting to be picked up on our weekly models in many markets. The bounce so far out of the week of 5/20 is flat so far. This tends to warn what will not bounce reverses hard. So we may still be looking at new lows in the metals for June and new highs in the Dow as European politicians still are doing everything possible but look in the mirror. These people are destroying Western Civilization with their old ideas that no longer apply.
As we move closer, we will update on these markets as they begin to line up like duckling following their mother.
Freedom to Travel in Europe Shutting Down
The freedom to travel in the European Union that was to be the cornerstone of the whole issue behind the Euro is now being shut-down. The EU Member States are now allowed to reintroduce border controls at will. This is all the result of what I have reported that apartments in Germany were almost all sold out as Spanish headed to Germany for relief payments. Again, because there was no consolidation of the debt the Eurozone is crumbling. They claim this will increase the security and stability, largely because they fear rising civil unrest this summer.
This is what a Sovereign Debt Crisis is all about. We lose all our rights and government clings to power becoming more draconian day by day. They are strangling the world economy beyond belief. Without major structural reform there will be nothing left. We have to blink – we just have to.
The Cyprus Crisis evolved into permanent currency controls. You can still only take out 300 euros. Any purchases need approval and verification of invoices. Businesses in Cyprus are now opening accounts in Switzerland, Luxembourg, and Lichtenstein diverting foreign payments themselves. The banking industry was destroyed. All that was left is tourism and Russians stopped going there. Tourism so far is off by about 40%. If they lose that, Cyprus has absolutely nothing left. Just for the record – Cyprus collapsed NOT because of its own problems, derivatives, or debt. Their banks were defaulted on by the Greek Sovereign Debt default. That was the problem with the failure to create a single debt. All state members debt became reserves. The EU promised there would be no defaults. They lied. That wiped out the banks and hence the depositors.
There are still diehard Euro fans that just hate the dollar. So as long as they exist, there is hope for a major crisis and we see the collapse that will spark a dollar rally, upset the US economy turning it down, and then perhaps we will get real political reform when there is enough blood in the streets. Not exactly sure how the Euro is the greatest advance in monetary systems other than being the catalyst to create the economic collapse of Marxism. But hey – to each his own.
“You don’t see what I see. The Euro is a better currency for being seperated from the states, finally governments are responsible for their own debts, no central bank to bail them out. What will that lead to? Smaller government of course (the ECB continually says they will not support government deficits, nor insolvent banks, and their actions prove this). You recently bemoaned the way the Fed has gone, yet you cannot see that the Euro and the dollar, the Fed and the ECB, they are polar opposites.
You are welcome to ask me questions, no man knows it all, but time will prove the Euro is the biggest advance in mankind’s development since the industrial revolution, as big as the internet. One day all currencies will be built this way, and the world will be a better place.“