Rando,

Spiffy response as always

I think it’s crystal clear what the Fed is after here; in my opinion, it is trying to avert deflation (i.e. it is trying to avert a liquidity trap and with the same token, allow banks to earn some sort of a ‘risk-less’ interest gain on reserves by putting a floor on rates, at least in money markets) at all costs while keeping the illusion of inflation alive but contained. Contained in the sense that it wants people to think that there is inflation in the economy, but contain it insofar as avoiding an asset bubble of sorts that would undoubtedly put the U.S economy on the verge of a deflationary slump that will last decades, not years to play itself out. Put differently, the Fed is trying to make it seem as inflationary forces are outweighing deflationary forces in an effort to keep the economy churning until consumer demand miraculously picks up. Of course, this in my opinion will not work even with rates at zero for two big reasons – a) this is not an affordability (i.e. rate) issue, but a money (i.e. income) issue, and b) it doesn’t want consumer to enter to a saving binge (despite the zero rate policy) that would automatically cause capital destruction and send the economy, well, into a long and painful depression, not recession.

Note: This is why all of these claims of massive or a stage of hyperinflation will soon ensure is completely false, simply because all of this money is being kept at banks or with the Federal Reserve, and whatever little money has been dished into the economy by the way of ‘stimulus’, has not caused a direct increase in prices. With consumer deleveraging on the credit end of spectrum, hedging themselves with the inflationary commodity that gold is, the economy will experience modest inflation (2 %– 3%) at best over the next few years (again, driven by expectations not actual inflation).  Both forces (inflation and deflation) are present in an economy at all times; it just so happens to be that deflation is feared to soon have the upper hand if this country enters a period of capital destruction.

That’s at least my general understanding of the Fed’s goals, but there are of course other key factors in play.   As far as inflating the price of gold, who do you think is really pulling the strings on all of these increases in margin requirements? It’s not the minions working over at the CME that merely perform the task, I’m sorry. It’s the feds trying to put a cap on the price of gold. I couldn’t agree more when you wrote – ‘did they (it; the Fed) dodge a bullet?’ – my answer is yes, but they are playing this one close, very close. In the future, if these margin increases do little to contain the spike in prices, look for countries like India and China to begin dumping some gold in the market; they too have a vested interest here.

Of course, this type of commentary will never be discussed over at CNBC (operated by goldmanites); these asinine clowns are there to bash the likes of Germany and France, which need I remind them are in far better shape than the U.S. At least France still has their AAA rating, and Germany, well they at least have economy that has far less inefficiencies than the U.S with a robust export market that is backed by the strong Euro (at least compared to the U.S), and that they can depend on to grow. The truth of the matter is that both of these countries, alongside some other European countries, are in better condition than the U.S believe it or not. The reason CNBC is engaging in these scare tactics is to try to attract capital into U.S equities (i.e. try to get moms and pops and foreign investors back into U.S equities). Sorry to say, it hasn’t worked and will not work. People have to realize that the U.S is no longer the best play to invest. It's hard for many to understand and accept, but it’s just a fact. No country ever stood as the supreme ruler of the world for ever. I'm afraid the U.S has passed on its battalion to former powers - Russia, Germany, France and to some degree China.

Mr. Sono, thanks for the post and videos.

Very good article on China; written by Niall Ferguson.

Gloating China, Hidden Problems

Very good read; can't say I agree with it all, but a good read.

Note: I've re-read some of my recent posts, and in my commentary I've noticed that I've committed some horrendous grammatical mistakes. Now I know no one here is grading me, but I still felt like I owed some sort of an explanation to such terrible grammar.

Ben's promises are empty

The decision by Standard & Poor's to downgrade the US credit rating to AA-plus caused a stock market slump and an extraordinary rally in US Treasuries, the latter further proof if you needed one that markets are often irrational. In spite of Federal Reserve chairman Ben Bernanke's Flying Dutchman-like attempt last Tuesday to nail interest rates to zero until 2013 it also marked a turning point: the final death-knell of the twin policies of excessive fiscal and monetary stimulus.

The Keynesian theory of fiscal stimulus, under which random government spending stimulates the economy, is bolstered by one enormous hidden advantage: Keynesians designed the principal measure of economic output, gross domestic product - or GDP. Unlike private-sector output, which is measured by what markets are actually prepared to pay for something, government output is measured purely on a cost basis, with no accounting for that output's value. Thus if a dozy government wastes $1 billion on rubbish of no value, GDP is said to be increased by $1 billion. Naturally, with that kind of "cooking the books", stimulus can appear to stimulate. It would be grossly unfair to say that no government output had any value. Indeed the most basic functions of government, national security and the preservation of order, often have a value far in excess of their cost, as sufferers from last week's British riots have discovered.

The solution is a simple one, even based on the statistics we are already provided with by the US Bureau of Economic Analysis: subtract line 21 (government consumption expenditures and gross investment) from line 1 (GDP) and examine the behavior of the net figure, which we can conveniently call gross private product (GPP).

Link - http://www.atimes.com/atimes/Global_Economy/MH17Dj01.html

I am not quite sure how many of you read the article I posted above, but if you haven’t done so already, I recommend you do so now.

For those not looking to read the entire article, here are the main points you should now (this has to be known by everyone in order to stop relying on the phony numbers the government spews month after month, but better yet, to understand were true value resides):

Please note that these are my notes with comments of my own.

1. There are two ways to measure output – using the Keynesian theory or the ‘private sector’ theory. The Keynesian theory factors in every new dollar/debt (garbage) created to GDP irregardless of the cost of that dollar. That is, if a dollar is created by let’s say an infrastructure bank (i.e. scam), it does not matter if the cost of that ‘new’ dollar outweighs the value (or benefits) - it still adds to GDP.  The ‘enterprise’ or ‘private sector’ works the opposite way; total output (or GDP in the government sense), is calculated only by the value that a $1 creates. If the cost of that dollar is greater, it doesn’t add to the value of the company.  This is critical to understand because it shows how big of a scam this engineered financial debacle really is, but more importantly, it shows how the creation of the mostly popularized infrastructure bank, is nothing more than a way to appropriate money (debt) from the corporations/elites (who by the way keep all the value out of these programs) to the public.  In addition, when you hear the ‘bubble-heads’ state idiotic claims that what we need is the creation of new jobs, and that will only be made possibly with creation of some bank, or bailout package, there are lying right in front of your face; all they want to do is create more dollars to cover the mess that they created for as long as possible, period.
2. As a result of the inaccurate GDP figure, the author makes the case that people should follow GPP which gives you the net value of an economy by subtracting government consumption expenditures and gross investment from GDP. The case for GPP is this; it is a far better indicator of economic growth, which allows you pinpoint to economic cycles (i.e. it allows you to know when a contraction or expansion is coming). Now, for the GPP figure to work, we must side with the Austrian school of thought that states that by  crowding out the private sector it substitutes less efficient for more efficient use of resources and hence retards growth, not with the popularized and often used Keynesian model that America so readily relies on, well, because it is easy to hide the reality of things.
3. So, with that in mind, the author makes the two points, both of which I cannot agree with more and have forewarned about for years (and of course, two points that you will not hear in any media outlet, at least not until after the fact) – a) all of these bailout packages and stimuli would not have been made possible had the Federal Reserve not ‘financed’ via real negative interest rates! This is the complete opposite of what it (the Fed) is trying to do now with its reverse repos exercises by essentially keeping real rates positive in order to avoid the grips of deflation or capital/dollar/debt erosion. Will it work? Sure, but the destiny of this country has been set – a default. Whether you choose to accept it, well, that’s for you to come to grips with. The facts are merely being presented, and b) the combination of fiscally and monetary irresponsible policies has only exacerbated the imbalances in the bond market (a point I’ve stressed ad naesuem before), eventually making it seem (and the author could not have used a better analogy) the tulip bubble back in the 1600’s as child’s play! If you don’t know much about the tulip bubble, you best inform yourself.

So there you have it, the end game. This type of material will never be presented by the idiots over at CNBC who worried about how many posts they can count.

Haven't posted in a while. Been busy with all sorts of stuff (I'll try to post once in a while when time permits). I've read some of the comments mentioned on the board on and off, and I must say there is some pretty good comments overall but I am appalled at other comments being offered. HSM is one of the few message boards were a few great minds gather to exchange ideas. With the constant flux of worthless comments by some, it has unfortunately deteriorated the quality of the message board. If you don't have anything that will add to the value of the site, please keep those comments off the boards. It's perfectly fine for everyone to ask questions. After all, that is why these message boards are for - to ask questions. I can't speak for others, but this constant cramming of vague and fruitless comments has been the reason why I stopped reading and posting on a routine basis, and I'd imagine it is probably the reason why other great traders have not come back.

On any case, you guys have to be very careful with how these markets are moving. These large price swings are indicative of not just volatility, but of a period of greater unrest and distress to come in the global financial markets. With rates in most of the developed world likley remain sub 1% for some time to come, the price swings you are going to see are going to be exacerbated to levels never before phantom. Banks will shake these markets left and right, as the end of this wealth extraction (or wealth transfer) process nears an end sometime in 2012/2013 (that is the enitre goal of keeping rates at 0%. It has very little to do with actually reviving demand).  It's about extracting as much wealth form the single biggest wealth creation in the history of the world. From you and I to the banks.

For those of you who have no idea what I'm talking about, read this thread or go out and find reliable (and unbiased) sources that support this. Rely on your OWN FINDINGS FROM UNBIASED SOURCES THAR PROVIDE HARD NOSE EVIDENCE, not from biased opinions offered by the media that stupidly likes to play idiotic psychological games, that they don't even master.  On any rate, I'm expecting the developed world to enter a 5 - 12 year period of 0% - 2% growth, with incomes declining each year up until 2014/2015. This drought in growth will not end until 2021 or 2023, or not until nearly 50% of the debt is worked off the system. With all of the debt that private sector and public sector have amassed over the last quarter century, debt will simply constrain growth. The opportunity will undoubtedly be in the emerging world, were corporations make sure to prop a new base of consumers until the next big wealth extraction takes place.

thegryfus - the answer to your question is simple. Put your money in the emerging market world.  Forget gold and silver, with deflation likely to remain a threat to the financial system, silver and gold, much like the stock market in the last 10 years, will produce no returns over the next 10 years. There will be no major sell of these precious metals, but the period of making money in these hard assets has long passed.

FEAR will become (and has been) the media biggest tool to create panics and booms. Be careful when fear is sold. Right there and then you should know a bigger scheme is in the works.

Good video; the guy says bonds is a good investment (or way to protect you assets). I have to disagree. The best way you can protect your assets from this wealth destruction (transfer) period is to diversify your holdings. Invest abroad.

I'm sure some of you already caught this snippet from Zero Hedge, but I just stumbled upon to thsi morning. Very good read.

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb?

http://www.zerohedge.com/news/five-banks-account-96-250-trillion-outstanding-derivative-exposure-morgan-stanley-sitting-fx-de

The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.

I really don't think that these people even understand the problem they are digging themselves, and the entire world into. They have no remorse in creating and  trading all of these instruments' to them, it's all part of a game.

Need I say more; the U.S. economy is staring down another recession, according to a forecast from the Economic Cycle Research Institute (a leading indicator).

My views - I've said it a thousand times and I'll say it again, invest your money abroad. If you don't have a big enough capital to buy land (the best alternative out there),

invest in those markets. I'm telling you, I think those markets will grow 3% - 4% over the next 7 - 15 years, while developed world economies will grow 0% - 2%. All of the debt that was and has been created will have to have to be worked off before growth resurfaces in any of these devloped economies.

"It's either just begun, or it's right in front of us," said Lakshman Achuthan, the managing director of ECRI. "But at this point that's a detail. The critical news is there's no turning back. We are going to have a new recession." The ECRI produces widely-followed leading indicators which predict when the economy is moving between recession and expansion. Achuthan said all those indicators are now pointing to a new economic downturn in the immediate future.

Stay away from the con-game. Just think about it this way. You're getting paid almost 4% more to invest in emerging market debt, while still running the same risk by buying liquid U.S debt. There is simply not reason to buy U.S debt unless you think deflation (a very probable threat; the Fed's worst fear) flourishes.

It's game over for the emerging market world.

Link to the entire article - http://money.cnn.com/2011/09/30/news/economy/double_dip_recession/index.htm?iid=Lead

In theory yes, but most likely not. Remember that plain vanilla options are by definition a derivative, so if we see a derivative fallout because there isn't enough capital to backstop any one of these derivatives that are tied say to Greece (which is in high risk of defaulting, at least as it it is represented by the highly manipulated CDS market), you're going to see some carnage in all derivatives. Do I think this is ultimately going to happen? No because banks have enough capital to cover any of these derivative losses (in practice with the backing of the Fed) and since 90% of these derivatives are held by the 4 biggest banks, there not going to allow any type of default by Greece or any other major country or corporation that could trigger a derivative default frenzy. After all, they stand to lose the most. What you're seeing right now is the creation of fear by the money thrusting banks. These banks are creating by fear by manipulating the CDS spreads of some of these countries (namely Greece, Italy, Ireland, etc) and corporations (namely Societete Generale, Morgan Stanley, etc) to be able to profit on your lack of knowledge on the matter and, well, on fear.

So the truth of the matter is that neither Greece, nor Morgan Stanley, nor Societe Generale, nor any of these countries or companies are going to default. The risk is simply unfathomable. It's simply to big of losses for any of these companies that hold these derivatives to to absorb (even with the baking of the Fed). In 2 - 6 months time, you'll see the fears subside. Later on they'll create some other fear and once again, create massive volatility to a) force you to lose money and b) spook you out. Now, let me be clear. All of these countries and corporations are in bad shape. I am not arguing against it. The U.S believe it or not is worst shape than many countries in Europe. However, the actual risk for any of these countries defaulting is very low for the above-mentioned reasons.

On the article of the U.S heading into a recession, I find it funny how the American people bought the idea that with the creation of all of this stimulus programs and bank bailouts, that somehow that would usher a new era of growth for the U.S, when in reality it did the complete opposite. Almost everyone believed it, and now that the money was spent (i.e. transference), everybody is now blaming the President, when the blame should reside on Wall St and Washington. I mean this is kinds funny really. You have 4 banks seizing complete control of all deposits in the country, aggregating enormous amounts of capital and you have 40+M people living in poverty in the country. I mean all this sham and charades orchestrated by the geniuses over at Wall St cannot become more self evident. this is why you're seeing people take the street over in New York. Although I do have to admit some of these people are there to cause a raucous, the majority are young people who are unemployed and are sick and tired of the inefficiencies of Washington and of the corruption class in Wall St. back in July I called for these riots. Expect many more to emanate throughout the world and country over the coming months as people demand what's theres.

Little by little, people are waking up. In the media, wellm they still have their heads up their ass.

Quote:

Originally Posted by mom2teens 

The article about the banks is really frightening.

 

Does this in any way effect those of us who trade derivatives? Once they are settled then it if fine. It will definitely make me think twice about going very long leaps. That is an added risk if we are headed back down again.

In the words of Rene Descartes -

If you would be a real seeker after truth, it is necessary that at least once in your life you doubt, as far as possible, all things.

A state is better governed which has few laws, and those laws strictly observed.

Good Read;

Bernanke's Clone: Sarah Raskin Says "Trust Us."

http://www.garynorth.com/public/8549.cfm

Even a 9 year old understands how messed up things are:

Kinda gives you a sense of how the rally is faring. The part I find funny is that all of these financiers living in these pricy condos near Wall St that are laughing. I'd love to see their faces when the march stops being peaceful, and people being to storm some of these condos occupied by these financiers. We'll love to see who will be laughing then

As for leaving the country, I doubt that would do much other than buy time. People are so enraged, they'll go after some of these people (money can't buy you everything, even protection).

Good read; can't say I agree 100%, but good read nonetheless.

http://www.shtfplan.com/headline-news/greek-default-will-trigger-an-immediate-magnitude-10-earthquake_10032011

If someone knows the truth, it is the guy at the top of UniCredit [Szalay-Berzeviczy], which we expect to promptly trade limit down once we hit print. Among the stunning allegations (stunning in that an actual banker dares to tell the truth) are the following:

“The euro is “practically dead” and Europe faces a financial earthquake from a Greek default”… “The euro is beyond rescue”… “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”….”A Greek default will trigger an immediate “magnitude 10” earthquake across Europe.“…”Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty “within minutes.”

VERY GOOD READS

Three relatively old articles, but three articles that explain the current mess. Goldman Sachs at it again of course....

I just wonder once the mess is over, how much public rancor will grow as a result of Goldman's and other large institutions intent to bring these countries to the brink of collapse for money and power.

Goldman Sachs Shorted Greek Debt After It Arranged Those Shady Swaps

Goldman Sachs arranged swaps that effectively allowed Greece to borrow 1 billion Euros without adding to its official public debt. While it arranged the swaps, Goldman also sought to buy insurance on Greek debt and engage in other trades to protect itself against the risk of a default on those swaps. Eventually, Goldman sold the swaps to the national bank of Greece.

Despite its role in creating swaps that may have allowed the Greek government to mask its growing debts, Goldman has no net exposure to a default on Greek debt, a person familiar with the matter says.

Goldman is “flat” when it comes to Greece, the person said. Which is to say, its long and short exposure to a potential Greek default are in balance.

EU Seeks Greek Swaps Disclosure After Ministry Probe

European Union regulators ordered Greece to disclose details of currency swaps after an inquiry by the country’s Finance Ministry uncovered a series of agreements with banks that it may have used to conceal mounting debts.

Banks Bet Greece Defaults on Debt They Helped Hide

Bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin, Nelson D. Schwartz and Eric Dash report in The New York Times. Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.

Before I share another good that talks about the similarities between the '08 price debacle with today's bear market, I want to touch base with the commentary I shared above. One of my subscribers emailed me earlier today, telling me that he read the above mentioned post. He told me that he couldn't agree more with my point of view (i.e. that these massive swings are bank engineered), but cited that that these institutions are in the business of  making money, just like any other business.  While I agree with his general view, I told him that I am not against businesses making money. After all, each business has to do whatever is necessary to make money. Whether it be branch out into a new segment of the industry, cut costs, invest in R&D, etc. What I have a problem is that these institutions are creating problems and exploiting them without having any regard whatsoever of how it might affect hundreds of million of people around the world. Their lack of care is just what really just astonishes me. Like I said earlier, its perfectly fine for any bank to go out and hedge their risk. That is how a business should conduct itself; however, what's not fine is for these institutions to go out into the market and begin to create derivatives (that quite frankly have no bunsiness of beign created, at least 90%+ of them) for the sole purpose of exacerbating, while single handedly benefiting enormously form it. If a Goldman or JP Morgan simply hedge their risk, none of this would be an issue (at least most of it). But when you have Goldman artificially propping up the CDS spreads (or costs in general) of an institution or/and country the sole purpose of making money, that presents a bigger problem that just defaults. It shows us how flawed capitalism and our understanding of economics really is. More regulation is not a solution. Sound business practices is.

Another good read;

Either We Are In For A Lehman Crash Or A Big Rebound

http://www.forbes.com/sites/investor/2011/10/04/either-we-are-in-for-a-lehman-crash-or-a-big-rebound/

A very long read, but definitely worth the read.

Why The "Occupy Wall Street" Protests Could Be More Important Than You Think

http://www.zerohedge.com/news/guest-post-what-country-needs-now-hope

Love this quote by Mahatma Ghandi - First they ignore you, then they laugh at you, then they fight you, then you win.

What I fund funny about all of this is the fact that very top seems to be unconcerned (at least for now) about these protests. These people unwillingness to comprehend and accept the power of these rallies is what will ultimately cause these rallies to turn from peaceful protests into revolutionary outcries that will bring about change, true change. When the media continues to hide the facts form the people and continues to build on lies by relying on distorted facts, all they they are doing at this stage is lying to themselves. Their not kidding anyone but themselves. A lot of people already has the capability of understanding how the game is played (at least in the media).  Once the other half wakes up, it's a whole new game.

Agreed Stuie.

Quote:

Originally Posted by Stuie 

I think they are laughing because people usually give up. I do not see them giving up and rightfully so. With Anonymous threatening to shut down Wall Street on the 10th definitely want to see what goes down.

Get a load of this.

Study: Wealthy Stockbrokers More Dangerous Than Psychopaths

The findings are a reminder of why now -- more than ever -- we must refuse to succumb to political apathy and laissez-faire demagoguery -  David Sirota (author).

Like most people living through this jarring age of economic turbulence and political dysfunction, you can probably recall a moment in the last few months when you thought to yourself that our lawmakers and corporate leaders are all crazy. And not just run-of-the-mill crazy, a la George Costanza's parents, but the kind of crazy that makes films like "Silence of the Lambs" and "One Flew Over the Cuckoo's Nest" so frightening. The good news for you is that you aren't insane for thinking this. The bad news for all of us, though, is that according to two new scientific analyses, you are more correct in your assessment than you may know.

The first revelation came from Dr. Nassir Ghaemi of Tufts University. In his recent book, "A First-Rate Madness," he went beyond merely restating the old adage that anyone crazy enough to run for public office probably shouldn't occupy that office. Instead, the book sheds light on what Ghaemi calls an "inverse law of sanity," whereby tumultuous times like these actually reward and promote political figures who are "mentally abnormal (or) even ill." Now comes a new study from Switzerland's University of St. Gallen showing that the most successful of the global financial elite probably pose more of a menace to society than known psychopaths.

The findings build on similar research in the recent past. In 1996, investigators at Glasgow Caledonian University discovered connections between psychopathy and successful financial speculation, concluding that "with the right parenting, (psychopaths) can become successful stockbrokers instead of serial killers."

Link to read more - http://www.sott.net/articles/show/235998-Study-Wealthy-Stockbrokers-More-Dangerous-Than-Psychopaths