Yesterday the Fed, as expected, lowered the Fed funds rate by .25%. In the following news conference Chairman Powell glossed over the issue that I wrote about yesterday- the liquidity problems that are causing the Fed to have to do repo operations to keep the financial plumbing that drives the economy alive. His comments were (re: biggest liquidity crisis in 10 years) “They have no implications for the economy or the stance of monetary policy” Is he kidding??? As of this morning, the liquidity problems are still GROWING not abating. The first round on Tuesday was around $53 billion, on Wednesday the bids were for $80 billion and on Wednesday morning they were higher again a $83.75 billion.
Something serious is happening here.
I still have to ask HOW they could have conjured up hundreds of trillions of dollars, euros, yen, yuan and various other currencies and there is still NO liquidity in the markets. According to Chairman Powell this has NOTHING to do with the stance of monetary policy. I guess conjuring up over $200 billion in 3 days and handing it out to extend and pretend that “all is well” is just normal these days.
Another “Powellism” from yesterday “It is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought”. REALLY? Since it had already started a week or so ago and now appears to be going into overdrive again it appears that this was something that was needed to be said so that when we look back we will see that he said something.
My point here is that these paper assets that are being artificially propped up appear to be at a point where the underlying liquidity driving these assets higher are under severe pressure. Since the Fed and other central banks can conjure up an unlimited amount of “money” I can’t be sure just how close we may be to a 2008-style credit freeze. I will say that everyone’s antenna should be up because the last time we saw this type of action Hank Paulsen was demanding hundreds of billions in bailouts and ultimately over $16 trillion was needed just in 2009 to bail these same banks out. (GAO)
Today, these banks are larger, as are their derivative positions. So much for those assets that are being artificially inflated- maybe for a while longer and maybe not.
On to an asset that is being artificially repressed. Gold and silver are both being held down by the banks but, again, if their funding dries up so will their ability to manage these markets lower as they have been for years. I know many have criticized me for years and have insinuated that I was nuts to believe that there was actual manipulation of these assets. However, I never wavered because it was so obvious in looking at the charts that it HAD to be.
Just this week one current and two former traders at JP Morgan were charged criminally for manipulating the gold and silver prices. The justice department actually charged three traders under the RICO statute. RICO is what the Feds used to take down mafia crime families in the past. This goes far beyond the miniscule (based upon their likely profits) fines the banks have paid in the past to settle other claims of market manipulation.
I still believe that these folks are just taking the rap as the real manipulation appears to be taking place in London at the daily gold fix. There was an article by Ronan Manly of BullionStar.com on Zerohedge which outlines how it has been done and the adverse impact on the gold price since 1919.
I have written many times that virtually all prices are being manipulated and there is really no price discovery anywhere because of the central banks “printing and buying” schemes. The only thing I can feel reasonably assured of is that, at some point, all of this will end. At that time, we will get price discovery. I believe that those who are holding assets that were artificially propped up will be surprised to find out the REAL value of what they are holding. On the other hand, those assets being held down will likely provide a welcome respite from most other assets that are adjusting far lower.
I have said many times that as long as paper asset prices are rising there is no problem. Once that reverses however, there may not be many, if any, buyers to provide the exit door that so many may be looking for. This would be especially true if liquidity does indeed dry up as the overnight funding markets are hinting at as we speak.
To anyone who thinks that “all is well” because we hear it said over and over again and the “market is up” ask yourself these questions.
· Why would the Fed lower rates if the economy was really ok?
· Why did the Fed have to provide $200 billion in liquidity (Conjured up money) in just 3 days?
· Why is shipping collapsing globally AND here in the USA?
· Why have we already set a new record for retail store closures in a year for 2019?
· Why are layoffs being announced virtually non-stop?
· Why are PMI (manufacturing Indexes) cratering here and globally?
· Why are $17 TRILLION in bonds trading at negative interest rates (never happened before in 5000 years of history)
· IF QE worked why are we still waiting for it to work in Japan (30 years) and across the globe for the last 10 years?
· If “printing money” creates wealth why are Zimbabwe, Venezuela, Argentina and other places not the richest countries on the planet?
· Why did the stock markets collapse 20% in December 2018 when the Fed (and only the Fed at that time) pulled back on stimulus?
· Why is real estate contracting even though rates have been falling significantly?
· Why is the Nikkei Stock Index DOWN 40% since 1989 despite the fact that the Japanese Central Bank has bought trillions of yen worth of that index- mostly in the past 5 years?
These are just a few questions you should be asking yourself as you try to maneuver through what may be coming next.