I was at a party over the weekend and someone asked me “Is what is going on with the banks normal?”
My answer was simple. This is so far from normal I can’t even express how outlandish what we are seeing now is.
Just think about this. We are told that “all is great!” At the same time, we are told that there was a mid-month funding problem with the banks in September that required short-term help. Then, a week later it was just quarter-end pressure. Tax payments, etc. Basically, nothing to see here!
Since then, we have seen the “temporary” repo actions extended to January ($75 billion per day), longer term loans of $30 billion 2 days per week and, as a cherry on top, last Friday it was announced by the Fed that they will again be buying $60 billion in Treasury bills per MONTH starting – TODAY!
In the meantime, just today the repo rate shot up to 2.275 (over the Fed’s target) even though there was over $80 BILLION in repo action this morning (above the $75 billion limit). Add that to the near $90 billion yesterday (20.1 billion for 14 days and $67.7 billion overnight)
This is a clear sign that all is NOT well and that there is a high likelihood that this is bigger than we are being led to believe right now and may grow far beyond what is being projected at this time.
I think it is amazing that with all of the central banks going full throttle “printing and buying” that the markets, outside of Friday’s rally, are signaling to me that the central banks are preventing a collapse rather than propelling markets to new highs. Even on Friday the rally relied on a trade deal and $80 billion in stimulus.
That is not to say that the stock and bond markets won’t reach new highs but it is unlikely, in my opinion, that they would be much higher than they were two years ago unless we see a US dollar problem that could cause a melt-up scenario.
The fact of the matter is they can “print and buy” all they want but the fake money just produces fake prices and NOTHING else.
With all of this excess liquidity being conjured up out of nowhere it has still led us to a place where banks are being bailed out again, the economy is imploding in front of our eyes and those “in charge” are reaping outsized benefits while regular people are being left in the dust.
For all of those who are brainwashed about the “greatest economy of all time”, if that were actually true why do banks need hundreds of billions and more likely tens of trillions AGAIN? Why is international and domestic shipping collapsing? Why are there headlines like “Worst Slump In A Generation” China Auto Sales Continue Historic Collapse (Zerohedge) commonplace?
Other headlines of note :
Yahoo Finance : (IMF) World economy expected to grow at the SLOWEST pace since 2008
Robert Schiller “The stock market is as highly priced as it was in 1929”
Other headlines like Retail Sales Unexpectedly Fall in September, Manufacturing Numbers Weakest Since 2008, Railroad Traffic Down 7% in September, Retail Store Closings Hit Another Record, Sears To Close Another 100 Stores, Companies and Individuals In Record Amount of Debt. These stories litter our newsfeeds and newspapers. Does this sound like a booming economy or an economy that is extremely vulnerable- particularly as things slow down and our record debts at virtually every level get harder to carry?
I believe that we are seeing something truly historic playing out before our eyes. Never in history have we been in a situation where the world overall is at stall speed and most likely already IN recession while the central banks are in unison propping up the system. The economy is grinding slower even as the monetary methadone is flowing in obscene amounts. The world has record debts, is seeing record amounts of stimulus and yet the economic numbers are falling through the floor. The only numbers growing it seems are the debts of individuals, companies, localities, states and sovereign nations.
My mistake! The bank accounts of those who can “print” the money or their friends who get it first (banks and large corporations) are also seeing their bank accounts rise at a dizzying pace.
Remember, QE was SUPPOSEDLY a response to fix the last problem in 2008. Since then, this emergency measure has become a necessity to keep asset prices artificially inflated. It appears that there is no expiration date. That day will come when the many realize that their labor is worthless because, as I wrote before, if a person can conjure up a trillion dollars with a mouse click and buy assets it would take 25 MILLION people earning $40,000.00 per year a full year to earn what is conjured up with nothing but a mouse click. In other words, you would have to work 25 MILLION YEARS personally to get the purchasing power of a mouse click. How is that not theft? How does that not render almost all of our labor moot? And yet many are clamoring for MORE!
As I have written many times in the last 10 years once we go down this path we either continue until our “money” is worthless which is becoming more obvious by the day or we stop the proliferation in debt and the system collapses under its own weight- which should have happened in 2008. We would likely have a sustainable recovery today- not the fake one that looks ready to implode at any time had it been allowed to play out.
I find so many people are totally unaware of what is happening right now. As the financial game shows mention repos or buying of Treasuries they never seem to explain “WHY”.
My take is that we are in the same position as 2008. The actual income that is being earned cannot carry the debts and debt payments due without “money from nowhere” to give the illusion of normalcy and solvency- of which I believe we have neither. This time they were ready and nobody begged for the $700 billion that turned into $24 trillion plus. (GAO) They just “print” it up! Aren’t we lucky?
History is full of stories about how this will likely play out. The negative interest rates (a first in 5000 years of recorded history) and coordinated “printing and buying” by all developed central banks have not changed economic rules- they just put off for a time and made the ultimate end-game that much more drastic when the stuff finally hits the fan.
Central banks continue to buy gold in record amounts (admitted). Central banks continue to buy bonds to keep those prices artificially inflated and borrowing costs low (admitted) and they continue to buy stocks along with sovereign wealth funds and others (even buybacks) to keep stock prices inflated (admitted by a few but I believe all are involved).
Since the spigots were turned back on and the banks now have liquidity (supposedly) again the gold price has been under pressure after a large rally this year. My opinion is that anyone wanting exposure in this area now would be a good time to add positions here. This looks to me like anything could happen at virtually any time. I believe those with real stuff (hard assets) will have an easier time when the financial assets are exposed and the “real” price reveals itself. Remember fake money leads to fake prices. Artificially elevated assets will likely be revalued FAR lower without greater fools and massive “printing” which have to end at some time and those assets artificially repressed will likely vault higher after years of manipulation lower. Don’t be fooled!
Financial Advisor, Raymond James Financial Services, Inc.
2642 Route 940
Pocono Summit, Pa 18346
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