Money Flow Trading Method along with Risk Management

https://www.financialsense.com/blog/...-hedge-or-hold

“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.”

John Neff, retired Vanguard Windsor portfolio manager

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

Robert G Allen, author and real estate investor
Last fall I gave client seminars in Scottsdale and San Diego. The second hour was called Zero-bound. The gist of my presentation was that we were headed back to zero percent interest rates during the next recession. It was our belief at the time that the economy would continue to expand with central banks around the globe applying monetary stimulus through interest rate cuts, including the U.S. Federal Reserve. I knew that eventually there would be another recession, which is why the Fed cut the federal funds rate three times last year. They don’t cut rates unless they see signs of economic weakness as GDP growth was slowing down.

As recent as late February of this year, the stock market was at record levels, the unemployment rate was the lowest in six decades and the futures market was predicting several more rate cuts this year by the Fed. The economic indicators from the ISM service sector and the job numbers for February were close to record highs.

That was then and this is now. As of this writing (March 26, 2020), 10-year Treasury notes are at 0.88%, 30-year bonds are yielding only 1.45%, and short-term Treasury bills are offering negative interest rates on three and six months. To keep money in short-term bills, you now have to pay the U.S. government to loan them money.

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The government is throwing in everything but the kitchen sink to keep the economy from descending into a recession. Second-quarter GDP is expected to contract anywhere from 12-24% and unemployment could be back over 10%.

As dismal as this all seems, it will not remain there for long. Listed below are the measures the Fed is now implementing on steroids:

1. Dropping fed funds rate to 0.0-0.25%
2. Discount rate reduced to 0.25% from 1.75% so banks can borrow from the Fed and loan money
3. QE infinity: Initially $700 billion; now infinite
4. Fed buying investment-grade corporate bonds and ETFs
5. Dollar swap arrangements with all major central banks (trade is done in dollars so the Fed is loaning dollars to other central banks to facilitate trade)
6. Backstopping money market funds
7. Backstopping the commercial paper markets (where corporations go to handle short-term funding needs)
8. Congress is considering giving the Fed the power to set up digital dollar accounts whereby the Fed would transfer dollars into your bank account as a direct injection of cash. Much faster than going through the Treasury to issue you checks. Can you say helicopter drops?

The country is now at war with the president invoking several war-time power measures, such as ordering companies to shift production to medical necessities like masks and respirators. What you are witnessing in monetary and fiscal terms is equivalent to what we call in war times “shock and awe”. This includes MOAB (the Mother of All fiscal Bombs). Round one of fiscal stimulus will be $2 trillion. On the day I’m writing, Congress is talking about additional rounds of fiscal stimulus to follow this as added assurance they will do “whatever it takes.”

As discussed previously, we will get stimulus one, two and three before this is all done. The U.S. is approaching $24 trillion in national debt and will be at $27 trillion or more by the end of fiscal 2021, which ends in September of next year. We are now looking at fiscal deficits that could approach $3 trillion annually over the next few years, raising the national debt to $30 trillion.

We simply don’t have the tax revenue to pay for all of this spending so it will be financed mainly with Federal Reserve money printing. In order to keep interest rates low to meet debt payments, the Fed will suppress interest rates and keep them artificially low as they are now. It is my view by the time this is all over, we will see negative interest rates on U.S. debt instruments as you see in Europe and Japan today. It may get to the point where banks charge you interest to keep your money on deposit as they did with institutions in 2008-2009, and as they are now doing in Europe and in Japan.

This brings me back to what I wrote previously: Why we set up the income account. We foresaw this day coming, albeit not this soon. The account was set up to provide an increasing stream of income that offered yields far above regular stock index funds and ETFs as well as bonds. As a hedge, we invested a portion in gold which, in my opinion, given the level of fiscal and monetary largesse, will eventually exceed its former highs.

We have roughly 15% invested in preferred stocks with yields as high as 7%, with several of our stocks now yielding over 9% as a result of the correction. I have not tried to time moving in and out of stocks nor have I used hedges like reverse income funds mainly because political headlines are driving this market. Recently, the Dow advanced nearly 12%, its biggest one day gain since 1933. The following day it was up another 6%; a gain of 18% in just two days.

It is impossible to predict daily moves when markets change this quickly. This is why instead of selling or hedging outside of gold, I have held on (the investment objective of this account). I cannot produce income levels that increase each year if I try to time the market nor do I feel I am smart enough to predict the daily moves of the markets when they move at warp speed daily.

A good example is Chevron, who announced on Tuesday they were suspending their $5 billion stock buyback program and pairing back capital expenditures in order to maintain and increase their dividend. The president of the company told analysts maintaining and increasing dividends was one of the company’s top priorities. The stock rose 23% after that announcement and is up 38% in just two days. Despite the run-up these last two days, the dividend yield is still high at 7.75%.
Our income portfolio includes many high-quality Dow stocks that all have a history of increasing dividends, which is why I chose them to begin with. I have not chosen to sell or hedge these stocks with reverse index funds or puts, simply because this market moves too fast. How could anyone know that the president of Chevron would make this announcement sending the company stock price up 38% in just two days?

As interest rates remain at zero, or go negative as they are in short-term Treasury yields, high quality blue-chip stocks will be sought out by pensions, institutions, insurance companies, and income investors and is why we continue to hold them. They are paying consistent dividends that increase over time, exactly as I expected.

I would like to end by sharing two personal stories. I have been a life-long student of Benjamin Graham, (Warren Buffett’s mentor) after reading Graham’s book The Intelligent Investor. I read that book in graduate school where I fell in love with the financial markets. I have also read everything about Warren Buffett — perhaps the most successful investor in history. If you want to understand Buffett, you need to understand cash flow. Buffett is all about owning companies that generate large amounts of cash. This makes sense as he runs an insurance company that makes money off the float between the premiums he takes in and the claims he pays out. The only difference between Buffett and the rest of us is that he has become so wealthy with this philosophy that he is able to buy whole companies instead of just shares. Even the stocks he owns like Wells Fargo, Coca-Cola, and Apple, many of which we also own, generate large amounts of cash and have strong profitability. Apple is still sitting on $100 billion in cash.

But the story I really want to share with you is an interview I did with famed technical analyst Ralph Acampora, which had a profound impact on me. Ralph is a legend in the industry for the numerous prescient market calls he has made throughout his long, successful career working on Wall Street. Once again, Ralph made a prescient call in my interview with him in August of 2018, where he predicted a major market correction within a bull market trend. The Fed was raising interest rates at the time and asset markets crashed in the fourth quarter and the S&P 500 fell just shy of 20% — not quite a bear market.

What he told me after he called for a major market correction left a profound impact on me.

I asked him, “What do you do Ralph if you are retired and need income?” He said, “My wife Rosemary was a financial advisor, specializing in retirement planning on Wall Street her entire career. Her specialty was putting her clients in dividend-paying stocks: blue-chip companies in the Dow and S&P 500, all of which paid increasing dividends every year.” We call these stocks dividend aristocrats, which populate our income portfolio.

When Ralph was predicting the bursting of the tech bubble in early 1999, he went to his wife and said they should consider selling out of their stock holdings. She told him to go away. When he persisted she explained her logic, “If we sell, we end up paying 40% in federal and state income taxes. There is your bear market. If we hold on, we owe no taxes, the dividends are taxed at a lower rate, they go up each year, and the stocks will come back when the recovery in the economy and next bull market begins.” That is exactly what happened.

He tried the same approach with his wife in 2007, when he again predicted a bear market ahead of time. He knew the drill and she told him the same story. They held on during the downturn and captured the entire market’s return which consisted of 339% in appreciation and 479% including dividends. Their dividend income more than doubled during the bull market.

He ended the story and said, “My wife told me, ‘if you sell, you have to sell at the right time and then buy at the right time. Then you have to pay the taxes.’ So we rode it on the way down and all the way back up….thank God Rosemary was adamant about it and didn’t listen to me. Because now I am lucky enough to buy the family farm, if not, I would be a cow on the farm.”

His story left a deep impression on me. Here was one of the greatest technicians I have ever known, who has made one prescient call after another on market tops and bottoms heeding his wife’s advice rather than following his instincts and that created great wealth for them both.
One approach I have incorporated and employed in the income account was something I learned from studying Ben Graham. That was to have 25% of your portfolio outside of stocks so you can take advantage of opportunities as we are doing now. The income portfolio maintains a 40% position, which includes T-bills we bought when interest rates were higher, preferred stocks and gold.

One of the greatest investors in history and one of the greatest technicians in the markets both bought and held dividend-paying stocks. This reinforces my own views of what I learned studying and following Graham and Buffett. This is what prompted me to create and launch the income account following the same Graham and Buffett principles.

We have been deploying cash and doubling down on many of the great companies we own and picking up incredible yields. I believe this will eventually gain traction as institutions and individual investors scramble to find returns in a world of zero and negative interest rates.

As mentioned in my previous letter, this too shall pass.
To find out more about Financial Sense Wealth Management or for a complimentary risk assessment of your portfolio, click here to contact us.
Advisory services offered through Financial Sense Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense Securities, Inc., Member FINRA/SIPC. DBA Financial Sense Wealth Management.
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https://www.zerohedge.com/geopolitic...ops+to+zero%29


Authored by Alastair Crooke via The Strategic Culture Foundation,

As the US and the UK, to stem Covid-19 infections, adopt a close-to-wartime approach, with intrusive levels of intervention into social life, these governments – as the corollary to lockdown – are proposing massive bail-outs. At first brush, this may seem both sensible and appropriate. But wait. Bailing out what? Well, financial markets of course, but then… just about everything: Boeing, the US Shale-oil industry, airlines, the tourist industry, and (in the US) every citizen – through posting them a $1,000, or a $2,000 check, this week – or, as is mooted in DC – perhaps one every month. Great! Just like Christmas.


The markets crashed: $½ Trillion in ‘liquidity’ here; $1.5 Tn there – and there – and there. An alphabet soup of lending facilities — pretty soon you are talking ‘real money’. The alphabet soup cloaks the collective size of liquidity available to banks. And likewise for individuals? 210 million US adults X $1,000, X 12 or 18 (months), is a staggering sum of money — closer to $4 Tn, or 18% of US GDP. Likewise, UK Chancellor Rishi Sunak pledged £330bn, or 15% of GDP, to support the economy, on top of a three-month mortgage payment holiday and a slew of tax deferments, and to do, as well, “whatever it takes”.

https://zh-prod-1cc738ca-7d3b-4a72-b...s/nystexch.jpg


So, how come? How is this money suddenly available – when we have repeatedly been told in the wake of the 2008 crisis that austerity must be the only answer?

Well, welcome to the ‘new orthodoxy’ (actually it is not new at all: France tried it in the eighteenth century when it ‘printed’ the Assignats). Call it ‘helicopter money’, or, the so-called ‘Modern Monetary Theory’: The principle is that it is okay to print money – if governments don’t otherwise have it. The point here is that ‘helicopter money’ (money conjured out of nothing: empty units reflecting no underlying real economic value) is a paradigm change.

A major paradigm change.
It is the legacy from 2008. That was primarily a banking crisis: Printing money seemed to work out pretty well then, in the view of the élites. The main reason that those ‘experts’ have thought that printing money worked in the wake of 2008 was because the Central Banks were able to reflate the financialised asset bubbles.


“But that wasn’t success, that was failure”, financial guru, Peter Schiff comments. It was a failure because it resulted in even bigger bubbles, and even greater debt – which precisely has set us all up for today’s crisis: For we are going into this crisis naked of any real tools to deal with supply-shock.


In 2008, everybody believed the money ‘printing’ was temporary: Bank balance sheets were all gummed up; and the Fed was going to be able afterwards to normalize interest rates, and shrink its balance sheet. Well, nobody is going to believe that, this time. No, debts will soar – and will be ‘forever’ debts.

Yet for today’s policy-makers, it all seems so reasonable, so plausible: If the Fed floods the financial system with money, interest rates can stay at zero for ever. What’s not to like about this? Certainly, it fits with Trump’s real estate career, built on low interest, easy debt. Governments now may borrow for a hundred years at zero interest; and banks can lend like fury, as the Fed has dropped the requirement for banks to keep any reserves against their loans (i.e. to ‘print’ more easy credit for the favoured).


Better still, governments can just conjure the money out of thin air (by monetizing its debts): It can use these funds to bail out all those businesses and citizens adversely affected by Covid-19, and become heroes. Welcome to the new ‘Orthodoxy’.


https://zh-prod-1cc738ca-7d3b-4a72-b.../munchnmny.png


What’s the alternative? Well that’s the point. The financialized, monetarist worldview dogmatically pursued through the last decades has left the toolbox with only one tool (more money, more liquidity). They have driven the world into this monetarist cul-de-sac. They will go on doing the same thing (liquidity and bailouts), over and over again, and (per Albert Einstein), always hoping for a different and better result. But it won’t work.

It won’t work because the problem is not lack of liquidity. It is that businesses have no business to do – under infection lockdown. We had better understand the consequences to this insanity. That’s all.


This time, the 2008 recipé will not work. The US is going to be hit hard. And Americans are only just waking up to this fact.


This New Orthodoxy is no more than a desperate throw of the dice to keep the western hyper-financialized system aloft. The ‘mobilized-for-war’ narrative is an attempt to justify authoritarian measures, and the false bail-out meme: There was no ‘free money’ during the Wars.


In the 2008/9 crisis, the public was bemused: The financial world seemed too arcane to grasp fully. Only later, was it appreciated that the banks were being saved by ‘socialising’ their mistakes and losses. These – the losses – were ‘socialised’ i.e. transferred to the public balance sheet, and the public were told to expect austerity – and pared down health and welfare systems, to pay for all these 2008 bail outs.


This time, it is not the banks, but corporations and their ‘junk’ debt, that the Authorities are hoping to preserve in aspic (just as the banks were, earlier). In simple terms, it will allow over-leveraged companies to go into even deeper debt – with those loans now backed by the US Federal government.


But, will a better informed public so readily agree that Boeing deserves a $60 Bn bailout, when all its cash was spent in the last years in buying back its own stock and paying large dividends. It may be argued that if the money simply is printed, austerity cuts may not be required. But printing money dilutes the underlying purchasing potential of the money that had existed before dilution. That is to say, it is the 60% who ultimately will pay the cost – again. The new austerity will be a covert wealth transfer through dilution of peoples’ purchasing potential.


As Schiff notes, monetary inflation “is probably not just the worst-case scenario, it’s probably the most likely scenario… the laws of economics apply here just like they did in the Weimar Republic of Germany, or in Zimbabwe, or in Venezuela. If we pursue the same monetary and fiscal policy they did, we’re going to receive the same monetary outcome they did (hyperinflation)”.


This all may seem a somewhat rarefied argument to some, but the implications (both political and geo-political) are huge. This wartime economic approach – of itself – is not going to bring radical change to our neo-liberalized institutional world, nor reform it. That window was shut after 2008.

The reality today is that to ‘touch’ the system now might induce a debt-deflation – a prospect which truly terrifies the Establishment – on top of impending supply-shock recession.


We are locked in through the errors of the Central Bankers: No wonder the Authorities are trying to kindle a war atmosphere in order to say that ‘helicopter money’ is okay. “It’s wartime”. And they will probably order the military out on the streets soon. Saying what is written here, will soon be held to be ‘enemy propaganda’.


The effect of a war-like command economy will not be to sweep society or the economy onto a new course, but rather, will be to re-situate it into the old grooves.

Will anyone believe that in this new ‘command economy’ era, the government directed bailouts and the credit lines, will not be channelled principally to the political élites and their allies?


Yet, just as after the sacrifices of two World Wars, there was ‘New Deal’ mood apparent amongst the people. So it was too, in the wake of 2008: There were calls for reform to a system that entrenched the richest one per cent; but instead we got austerity, and a return to business as usual. Policy was deliberately designed to prop up the old system, and make it function as before. Reform denied.


Today, people are fully focused on managing their lives under virus lockdown, but the political pendulum has been swinging markedly (so-called populist politics) against what is widely perceived as a politically and economically ‘rigged system’.

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The question then is, firstly, will US monetary actions succeed? Will they succeed in saving the financial system, ‘as it used to be’? Well, take the call for helicopter money: the term refers to giving money directly to individuals as if dropping cash on everybody out of a helicopter. But Schiff points out, that when Milton Friedman (the father of monetarist economics) coined the term, he intended it as a joke:

“He was using it as an example of what not to do – about why Keynesian monetary stimulus doesn’t work. He said it’s a crazy, stupid idea … Because dropping money from helicopters doesn’t do anything. It’s just inflation. It just makes prices go up”.

And, secondly, will this approach – which anyway is not working, as markets continue to implode – provoke a more concerted opposition to financial excess and inequality, in all its various forms? Will the demand for reform of the neo-liberal system become unstoppable? Maybe the ‘community spirit’ of suffering the virus together, will not be so tolerant of leaders who have failed to take appropriate steps to staunch infection spread, in a timely fashion?


Here, it is the ‘war’ on Covid-19 – rather than the other ‘war’ to save the economy – that will play a key role in shaping the geo-political future.

Enough people have already commentated on the communal, national sentiment being generated by Corona virus. Here in Italy, Italians do feel far more linked empathetically – as if fighting a common enemy (which in a way they are). We all feel for the inhabitants of Lombardy and Bergamo. And, Italians know too, that they are on their own.


This feeling of Euro sauve qui peut (every country to its own) is palpable, and not confined to those just outside the EU borders, such as when the Serbian President (reacting bitterly to news that the EU had imposed an export ban on equipment such as masks and gowns to protect medical workers), said: “International solidarity does not exist. European solidarity does not exist”, to which most Italians would have responded ‘hear, hear’. The only help for Italy arrived from China.


It is the return of the nation-state. Covid-19 will change the course of Italian politics, as well as determine – in a significant way – the future of the EU. Let us be clear: The US and the UK can only make those offers of gushing liquidity and bail-outs – because they ‘print’ money. They control their own money-supply, their deficits – and to a much lesser extent, have some scope over interest rates. EU states do not. And arguments over EU financial mitigation for Covid-19 will ‘rack’ EU institutions and unity – perhaps to breaking-point.


And this more general attitude of sauve qui peut and lack of empathy is probably felt nowhere more deeply than in China. The more so, even than Italy. China has been denigrated, particularly in America, in a way that many Chinese feel borders on racism. Pepe Escobar has written:

“Among the myriad, earth-shattering geopolitical effects of coronavirus, one is already graphically evident. China has re-positioned itself. For the first time since the start of Deng Xiaoping’s reforms in 1978, Beijing openly regards the US as a threat, as stated a month ago by Foreign Minister Wang Yi at the Munich Security Conference during the peak of the fight against coronavirus.

“Beijing is carefully, incrementally shaping the narrative that, from the beginning of the coronovirus attack, the leadership knew it was under a hybrid war attack. Xi’s terminology is a major clue. He said, on the record, that this was war. And, as a counter-attack, a “people’s war” had to be launched.”

Europe and America will be facing a very different Chinese-Russian axis in the wake of the Coronavirus. The gloves are off. And Europe will be the first to feel the effect: No more Euro prevarication. That is to say, no more ‘one foot in; one foot out’ in relations with China (on Huawei 5G – as just one example).

Russia and China well understand: Helicopter money, and unparalleled ‘printed’ bail-outs, this is the game-changer. For now, the US dollar is soaring on demand from states who see their own currencies crashing, but who have borrowed in dollars – and see those dollar loans becoming shockingly more costly, day-by-day.


But, the G7 Central Banks finally will have to fight the inflation monster that will be unleashed by their ‘helicopter theories’. Confidence in the dollar will decline, as more and more dollar helicopter ‘drops’ are made. Interest rates will rise, and western junk debt will become toxic, and untenable at higher rates.


In a word, the world will come to see the US as much less powerful and less competent than appearances have projected it. Its lacunae will stare out.
Is the time approaching for that global monetary re-set, as the dollar loses its shine, President Putin must be mulling…?

https://moneymaven.io/mishtalk/econo...hkOLzUDT3Huu2g

Huge Interest Rate Dislocations: Did the Fed Cut Too Much?


https://imageproxy.themaven.net/http...JkmAkF8QcDmQnA

Mish


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A series of charts shows new fed-sponsored interest rate dislocations. Let's dive into the charts.

Note: Please stay with this post even if you do not understand the terms. I tie this all together so that you can see what is going on.


Yesterday afternoon, Randy Woodward, the @TheBondFreak pinged me with a chart of the SOFR rate vs LIBOR.
SOFR stands for Secured Overnight Financing Rate.


In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based. SOFR is based on the Treasury repurchase market Treasuries loaned or borrowed overnight. SOFR uses data from overnight Treasury repo activity to calculate a rate published at approximately 8:00 a.m. New York time on the next business day by the US Federal Reserve Bank of New York.


SOFR is the new replacement for LIBOR. As such, the rates should track closely. SOFR should also closely track the 3-month T-Bill rate which in turn should closely track the Eurodollar rate. All of these are interest rate products.

In September the SOFR rate spiked as high as 9% intra-day. Since then, the Fed managed to get SOFR under control, but now we see dislocations in LIBOR and the Eurodollar.

The important point is these products should all track within reasonable spreads but they don't.


LIBOR vs SOFR
The initial chart Woodward sent showed LIBOR spiking by over 100 basis points above SOFR.
To be more precise, LIBOR was at 1.23% and SOFR was at 0.02%.
I asked, why stop there?

Over the course of the next hour I kept asking for more and more things on the same chart, ultimately ending up with LIBOR, SOFR, Eurodollars, the 3-Month T-Bill, and Fed Funds Futures all on one chart.

Eurodollar Explanation
Eurodollars may be one of the worst named products in history. Eurodollars have nothing to do with euros. Rather it represents the interest rate on US dollars held overseas.

Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition. A U.S. dollar-denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit (sometimes an Asiadollar). There is no connection with the euro currency or the eurozone.

CME Eurodollar futures prices are determined by the market's forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. A price of 95.00 implies an interest rate of 100.00 - 95.00, or 5%. The settlement price of a contract is defined to be 100.00 minus the official British Bankers' Association fixing of 3-month LIBOR on the day the contract is settled.

To get Eurodollars on the same scale as everything else, we had to use inverse math as described above.

Hopefully, it is easy to see from the above explanations (even if you don't quite understand them), that these products are all related and should all reasonably track each other.

Five Key Interest Rate Measures

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Note that Eurodollars (pink) are a leading indicator of what the Fed is expected to do.
The Fed Funds Effective Rate lags. This is why Jim Bianco and I suggested the Fed would cut and cut big. Bianco was confident enough to say the Fed would cut rates between meetings while I only mentioned the possibility.

Kudos to Bianco for his bolder call.

Not only did the Fed cut once intra-meeting but twice, again as discussed by Bianco and I. But look at the result.
Fed Fund Futures vs Fed Funds Rate vs Eurodollar Implied Yield

https://imageproxy.themaven.net/http...z0GwUl4Ju23xCg

Not only did the Fed's second cut totally blow up LIBOR by 120+ basis points, it also dislocated Eurodollars.
The implied Eurodollar rate suggests the Fed needs to hike interest rates by 1/4 point.

Well, good luck with that.

What Happened?
It appears the market was not prepared for the Fed to cut all the way to zero.
Moreover, the speed of the cuts caught nearly all the market participants off guard.

Take a peek at that top chart again.
Then recall the Fed's message for months heading into 2020: "No more cuts, no more hikes for a year."
Note how closely the 3-month T-Bill, Eurodollars, LIBOR, and SOFR all tracked each other, until they didn't.


Hooray!?
Hooray, the Fed has SOFR under control. But what about LIBOR and Eurodollars?

Eurodollars are the most widely traded futures contract. And despite all the time allotted, the market is still not prepared for the switch from LIBOR to SOFR.
Let's return to one of my opening statements "In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based."

But what about the stability of all those LIBOR and Eurodollar contracts?

Commercial Mortgages on Brink of Collapse
Here's a link that caught my eye: Real Estate Billionaire Barrack Says Commercial Mortgages on Brink of Collapse.
By any chance are those contracts LIBOR based?

Very Deflationary Outcome Has Begun: Blame the Fed
The Fed is struggling mightily to alleviate the mess it is largely responsible for.
I previously commented a Very Deflationary Outcome Has Begun: Blame the Fed

The Fed blew three economic bubbles in succession. A deflationary bust has started. They blew bubbles trying to prevent "deflation" defined as falling consumer prices.

BIS Deflation Study
The BIS did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
For a discussion of the study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Deflation is not really about prices. It's about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.


Assessing the Blame
Central banks are not responsible for the coronavirus. But they are responsible for blowing economic bubbles prone to crash.
The equities bubbles before the coronavirus hit were the largest on record.


System Wide Margin Call
Please note "The worst scramble for cash is happening in an opaque corner of the market that the Fed can’t control."
Unfortunately, We're Looking at a System-Wide Margin Call

The Federal Reserve ushered out a second wave of quantitative easing Monday. But the worst scramble for cash is happening in an opaque corner of the market, where Chairman Jerome Powell has little control. What we’re witnessing is a system-wide margin call.


With the coronavirus outbreak intensifying, asset managers are getting squeezed by a record outflow from bond funds and billions more from stock funds. Even bigger withdrawals are probably happening in the over-the-counter world, where trades are conducted out of public eye, through broker-dealers. When traders get margin calls, they resort to selling their most liquid assets, usually stocks and U.S. Treasuries. This only deepens the slide.

As of June 2019, the notional amount of such derivatives rose to $640 trillion, the highest since 2014, data provided by Bank of International Settlements show. Gross market value, which gauges how much money would be transferred if all trades shut down, totaled about $12 trillion in mid-2019, 30% lower than in 2014.
In ordinary times, gross market value is a better gauge of the amount at risk because of netting agreements. If a bank is $99 short on a trade and $99.10 long with other clients, its exposure is only 10 cents.


But we live in extraordinary times, and gross market value can also serve as a proxy for how much money the financial system has put aside to sustain that $640 trillion OTC derivatives exposure, according to research conducted at Prerequisite Capital. As of last June, the margin requirement, which the firm defines as the ratio between gross market value and notional amount, was 1.9% — a record low. In other words, there isn’t enough balance sheet provision for black swan events.
From risk parity strategies to statistical arbitrages, the coronavirus is unraveling the most sophisticated of trades. This is a reminder that there’s only so much hedging we can do. Today you’re in, tomorrow you’re out.

Mad Scramble to Rebalance $640 Trillion
So, we have a mad scramble for cash with $640 trillion in derivatives floating around.
If you prefer, the actual gage is a a mere $12 trillion of which interest rate derivatives are likely the single largest component.


Two Questions

 

1. What can possibly go wrong?
2. Where to from here?

I will leave number one to your imagination.

In regards to number 2, US Output Drops at Fastest Rate in a Decade

More importantly, please consider Nothing is Working Now: What's Next for America?

I discuss 20 things that are likely.

Final Question
I leave you with one simple question:
Got Gold?


Mike "Mish" Shedlock

https://www.zerohedge.com/markets/ne...ops+to+zero%29


Authored by Jack Rasmus via Counterpunch.org,
Yesterday, the Federal Reserve crossed its latest liquidity free money Rubicon. It announced it will provide unlimited credit–and assume the bad debts, not just of banks, shadow banks, and wealthy investors but for what it called ‘Main St.’


https://zh-prod-1cc738ca-7d3b-4a72-b...%20%281%29.jpg

But by ‘Main St.’ it doesn’t mean consumers or households. It means that virtually any capitalist financial enterprise that has bad debt it can now dump it on the Fed.

In their announcement of its latest ‘lending facility’, as it is called, the Fed declared it would ‘support’ small business loans, student loans, auto securitized loans, and credit card debt. But that does not mean the Fed will ‘support’ consumers and assume their loans.


Oh no!


It means it will support the financial lenders making such loans for students, auto purchases, credit cards and small businesses.

It means these lenders can now dump their bad, defaulted, or otherwise non-performing debt from credit cards, auto loans, student or small business loans on the Fed.

The Fed will eat it for them, and add it to the Fed’s own $4 trillion plus indebted balance sheet–soon to rise to $8 trillion or more.


I propose therefore we erect a new Statue of Money Capital on the steps in front of the Federal Reserve building in Washington D.C. A companion to the Statue of Liberty in the New York harbour. And on it we should inscribe the following motto:

“Give me your busted financial speculators, your bankrupt businesses, your huddled hedge funds yearning for guaranteed high yield. The wretched of your banking system. Send me your former millionaires with now empty accounts and I will make them whole again. I lift my greenback lamp beside my free money door. Come in and get what you want!”

What are markets for at all if The Fed now backstops everything?

https://www.zerohedge.com/geopolitic...ops+to+zero%29


Authored by Alastair Crooke via The Strategic Culture Foundation,

As the US and the UK, to stem Covid-19 infections, adopt a close-to-wartime approach, with intrusive levels of intervention into social life, these governments – as the corollary to lockdown – are proposing massive bail-outs. At first brush, this may seem both sensible and appropriate. But wait. Bailing out what? Well, financial markets of course, but then… just about everything: Boeing, the US Shale-oil industry, airlines, the tourist industry, and (in the US) every citizen – through posting them a $1,000, or a $2,000 check, this week – or, as is mooted in DC – perhaps one every month. Great! Just like Christmas.


The markets crashed: $½ Trillion in ‘liquidity’ here; $1.5 Tn there – and there – and there. An alphabet soup of lending facilities — pretty soon you are talking ‘real money’. The alphabet soup cloaks the collective size of liquidity available to banks. And likewise for individuals? 210 million US adults X $1,000, X 12 or 18 (months), is a staggering sum of money — closer to $4 Tn, or 18% of US GDP. Likewise, UK Chancellor Rishi Sunak pledged £330bn, or 15% of GDP, to support the economy, on top of a three-month mortgage payment holiday and a slew of tax deferments, and to do, as well, “whatever it takes”.

https://zh-prod-1cc738ca-7d3b-4a72-b...s/nystexch.jpg


So, how come? How is this money suddenly available – when we have repeatedly been told in the wake of the 2008 crisis that austerity must be the only answer?

Well, welcome to the ‘new orthodoxy’ (actually it is not new at all: France tried it in the eighteenth century when it ‘printed’ the Assignats). Call it ‘helicopter money’, or, the so-called ‘Modern Monetary Theory’: The principle is that it is okay to print money – if governments don’t otherwise have it. The point here is that ‘helicopter money’ (money conjured out of nothing: empty units reflecting no underlying real economic value) is a paradigm change.

A major paradigm change.
It is the legacy from 2008. That was primarily a banking crisis: Printing money seemed to work out pretty well then, in the view of the élites. The main reason that those ‘experts’ have thought that printing money worked in the wake of 2008 was because the Central Banks were able to reflate the financialised asset bubbles.


“But that wasn’t success, that was failure”, financial guru, Peter Schiff comments. It was a failure because it resulted in even bigger bubbles, and even greater debt – which precisely has set us all up for today’s crisis: For we are going into this crisis naked of any real tools to deal with supply-shock.


In 2008, everybody believed the money ‘printing’ was temporary: Bank balance sheets were all gummed up; and the Fed was going to be able afterwards to normalize interest rates, and shrink its balance sheet. Well, nobody is going to believe that, this time. No, debts will soar – and will be ‘forever’ debts.

Yet for today’s policy-makers, it all seems so reasonable, so plausible: If the Fed floods the financial system with money, interest rates can stay at zero for ever. What’s not to like about this? Certainly, it fits with Trump’s real estate career, built on low interest, easy debt. Governments now may borrow for a hundred years at zero interest; and banks can lend like fury, as the Fed has dropped the requirement for banks to keep any reserves against their loans (i.e. to ‘print’ more easy credit for the favoured).


Better still, governments can just conjure the money out of thin air (by monetizing its debts): It can use these funds to bail out all those businesses and citizens adversely affected by Covid-19, and become heroes. Welcome to the new ‘Orthodoxy’.


https://zh-prod-1cc738ca-7d3b-4a72-b.../munchnmny.png


What’s the alternative? Well that’s the point. The financialized, monetarist worldview dogmatically pursued through the last decades has left the toolbox with only one tool (more money, more liquidity). They have driven the world into this monetarist cul-de-sac. They will go on doing the same thing (liquidity and bailouts), over and over again, and (per Albert Einstein), always hoping for a different and better result. But it won’t work.

It won’t work because the problem is not lack of liquidity. It is that businesses have no business to do – under infection lockdown. We had better understand the consequences to this insanity. That’s all.


This time, the 2008 recipé will not work. The US is going to be hit hard. And Americans are only just waking up to this fact.


This New Orthodoxy is no more than a desperate throw of the dice to keep the western hyper-financialized system aloft. The ‘mobilized-for-war’ narrative is an attempt to justify authoritarian measures, and the false bail-out meme: There was no ‘free money’ during the Wars.


In the 2008/9 crisis, the public was bemused: The financial world seemed too arcane to grasp fully. Only later, was it appreciated that the banks were being saved by ‘socialising’ their mistakes and losses. These – the losses – were ‘socialised’ i.e. transferred to the public balance sheet, and the public were told to expect austerity – and pared down health and welfare systems, to pay for all these 2008 bail outs.


This time, it is not the banks, but corporations and their ‘junk’ debt, that the Authorities are hoping to preserve in aspic (just as the banks were, earlier). In simple terms, it will allow over-leveraged companies to go into even deeper debt – with those loans now backed by the US Federal government.


But, will a better informed public so readily agree that Boeing deserves a $60 Bn bailout, when all its cash was spent in the last years in buying back its own stock and paying large dividends. It may be argued that if the money simply is printed, austerity cuts may not be required. But printing money dilutes the underlying purchasing potential of the money that had existed before dilution. That is to say, it is the 60% who ultimately will pay the cost – again. The new austerity will be a covert wealth transfer through dilution of peoples’ purchasing potential.


As Schiff notes, monetary inflation “is probably not just the worst-case scenario, it’s probably the most likely scenario… the laws of economics apply here just like they did in the Weimar Republic of Germany, or in Zimbabwe, or in Venezuela. If we pursue the same monetary and fiscal policy they did, we’re going to receive the same monetary outcome they did (hyperinflation)”.


This all may seem a somewhat rarefied argument to some, but the implications (both political and geo-political) are huge. This wartime economic approach – of itself – is not going to bring radical change to our neo-liberalized institutional world, nor reform it. That window was shut after 2008.

The reality today is that to ‘touch’ the system now might induce a debt-deflation – a prospect which truly terrifies the Establishment – on top of impending supply-shock recession.


We are locked in through the errors of the Central Bankers: No wonder the Authorities are trying to kindle a war atmosphere in order to say that ‘helicopter money’ is okay. “It’s wartime”. And they will probably order the military out on the streets soon. Saying what is written here, will soon be held to be ‘enemy propaganda’.


The effect of a war-like command economy will not be to sweep society or the economy onto a new course, but rather, will be to re-situate it into the old grooves.

Will anyone believe that in this new ‘command economy’ era, the government directed bailouts and the credit lines, will not be channelled principally to the political élites and their allies?


Yet, just as after the sacrifices of two World Wars, there was ‘New Deal’ mood apparent amongst the people. So it was too, in the wake of 2008: There were calls for reform to a system that entrenched the richest one per cent; but instead we got austerity, and a return to business as usual. Policy was deliberately designed to prop up the old system, and make it function as before. Reform denied.


Today, people are fully focused on managing their lives under virus lockdown, but the political pendulum has been swinging markedly (so-called populist politics) against what is widely perceived as a politically and economically ‘rigged system’.

https://zh-prod-1cc738ca-7d3b-4a72-b...helicmoney.jpg


The question then is, firstly, will US monetary actions succeed? Will they succeed in saving the financial system, ‘as it used to be’? Well, take the call for helicopter money: the term refers to giving money directly to individuals as if dropping cash on everybody out of a helicopter. But Schiff points out, that when Milton Friedman (the father of monetarist economics) coined the term, he intended it as a joke:

“He was using it as an example of what not to do – about why Keynesian monetary stimulus doesn’t work. He said it’s a crazy, stupid idea … Because dropping money from helicopters doesn’t do anything. It’s just inflation. It just makes prices go up”.

And, secondly, will this approach – which anyway is not working, as markets continue to implode – provoke a more concerted opposition to financial excess and inequality, in all its various forms? Will the demand for reform of the neo-liberal system become unstoppable? Maybe the ‘community spirit’ of suffering the virus together, will not be so tolerant of leaders who have failed to take appropriate steps to staunch infection spread, in a timely fashion?


Here, it is the ‘war’ on Covid-19 – rather than the other ‘war’ to save the economy – that will play a key role in shaping the geo-political future.

Enough people have already commentated on the communal, national sentiment being generated by Corona virus. Here in Italy, Italians do feel far more linked empathetically – as if fighting a common enemy (which in a way they are). We all feel for the inhabitants of Lombardy and Bergamo. And, Italians know too, that they are on their own.


This feeling of Euro sauve qui peut (every country to its own) is palpable, and not confined to those just outside the EU borders, such as when the Serbian President (reacting bitterly to news that the EU had imposed an export ban on equipment such as masks and gowns to protect medical workers), said: “International solidarity does not exist. European solidarity does not exist”, to which most Italians would have responded ‘hear, hear’. The only help for Italy arrived from China.


It is the return of the nation-state. Covid-19 will change the course of Italian politics, as well as determine – in a significant way – the future of the EU. Let us be clear: The US and the UK can only make those offers of gushing liquidity and bail-outs – because they ‘print’ money. They control their own money-supply, their deficits – and to a much lesser extent, have some scope over interest rates. EU states do not. And arguments over EU financial mitigation for Covid-19 will ‘rack’ EU institutions and unity – perhaps to breaking-point.


And this more general attitude of sauve qui peut and lack of empathy is probably felt nowhere more deeply than in China. The more so, even than Italy. China has been denigrated, particularly in America, in a way that many Chinese feel borders on racism. Pepe Escobar has written:

“Among the myriad, earth-shattering geopolitical effects of coronavirus, one is already graphically evident. China has re-positioned itself. For the first time since the start of Deng Xiaoping’s reforms in 1978, Beijing openly regards the US as a threat, as stated a month ago by Foreign Minister Wang Yi at the Munich Security Conference during the peak of the fight against coronavirus.

“Beijing is carefully, incrementally shaping the narrative that, from the beginning of the coronovirus attack, the leadership knew it was under a hybrid war attack. Xi’s terminology is a major clue. He said, on the record, that this was war. And, as a counter-attack, a “people’s war” had to be launched.”

Europe and America will be facing a very different Chinese-Russian axis in the wake of the Coronavirus. The gloves are off. And Europe will be the first to feel the effect: No more Euro prevarication. That is to say, no more ‘one foot in; one foot out’ in relations with China (on Huawei 5G – as just one example).

Russia and China well understand: Helicopter money, and unparalleled ‘printed’ bail-outs, this is the game-changer. For now, the US dollar is soaring on demand from states who see their own currencies crashing, but who have borrowed in dollars – and see those dollar loans becoming shockingly more costly, day-by-day.


But, the G7 Central Banks finally will have to fight the inflation monster that will be unleashed by their ‘helicopter theories’. Confidence in the dollar will decline, as more and more dollar helicopter ‘drops’ are made. Interest rates will rise, and western junk debt will become toxic, and untenable at higher rates.


In a word, the world will come to see the US as much less powerful and less competent than appearances have projected it. Its lacunae will stare out.
Is the time approaching for that global monetary re-set, as the dollar loses its shine, President Putin must be mulling…?

https://moneymaven.io/mishtalk/econo...hkOLzUDT3Huu2g

Huge Interest Rate Dislocations: Did the Fed Cut Too Much?


https://imageproxy.themaven.net/http...JkmAkF8QcDmQnA

Mish


https://imageproxy.themaven.net//htt...sion%3D1756462

A series of charts shows new fed-sponsored interest rate dislocations. Let's dive into the charts.

Note: Please stay with this post even if you do not understand the terms. I tie this all together so that you can see what is going on.


Yesterday afternoon, Randy Woodward, the @TheBondFreak pinged me with a chart of the SOFR rate vs LIBOR.
SOFR stands for Secured Overnight Financing Rate.


In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based. SOFR is based on the Treasury repurchase market Treasuries loaned or borrowed overnight. SOFR uses data from overnight Treasury repo activity to calculate a rate published at approximately 8:00 a.m. New York time on the next business day by the US Federal Reserve Bank of New York.


SOFR is the new replacement for LIBOR. As such, the rates should track closely. SOFR should also closely track the 3-month T-Bill rate which in turn should closely track the Eurodollar rate. All of these are interest rate products.

In September the SOFR rate spiked as high as 9% intra-day. Since then, the Fed managed to get SOFR under control, but now we see dislocations in LIBOR and the Eurodollar.

The important point is these products should all track within reasonable spreads but they don't.


LIBOR vs SOFR
The initial chart Woodward sent showed LIBOR spiking by over 100 basis points above SOFR.
To be more precise, LIBOR was at 1.23% and SOFR was at 0.02%.
I asked, why stop there?

Over the course of the next hour I kept asking for more and more things on the same chart, ultimately ending up with LIBOR, SOFR, Eurodollars, the 3-Month T-Bill, and Fed Funds Futures all on one chart.

Eurodollar Explanation
Eurodollars may be one of the worst named products in history. Eurodollars have nothing to do with euros. Rather it represents the interest rate on US dollars held overseas.

Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition. A U.S. dollar-denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit (sometimes an Asiadollar). There is no connection with the euro currency or the eurozone.

CME Eurodollar futures prices are determined by the market's forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. A price of 95.00 implies an interest rate of 100.00 - 95.00, or 5%. The settlement price of a contract is defined to be 100.00 minus the official British Bankers' Association fixing of 3-month LIBOR on the day the contract is settled.

To get Eurodollars on the same scale as everything else, we had to use inverse math as described above.

Hopefully, it is easy to see from the above explanations (even if you don't quite understand them), that these products are all related and should all reasonably track each other.

Five Key Interest Rate Measures

https://imageproxy.themaven.net/http...n0es1Nch3ExcqA

Note that Eurodollars (pink) are a leading indicator of what the Fed is expected to do.
The Fed Funds Effective Rate lags. This is why Jim Bianco and I suggested the Fed would cut and cut big. Bianco was confident enough to say the Fed would cut rates between meetings while I only mentioned the possibility.

Kudos to Bianco for his bolder call.

Not only did the Fed cut once intra-meeting but twice, again as discussed by Bianco and I. But look at the result.
Fed Fund Futures vs Fed Funds Rate vs Eurodollar Implied Yield

https://imageproxy.themaven.net/http...z0GwUl4Ju23xCg

Not only did the Fed's second cut totally blow up LIBOR by 120+ basis points, it also dislocated Eurodollars.
The implied Eurodollar rate suggests the Fed needs to hike interest rates by 1/4 point.

Well, good luck with that.

What Happened?
It appears the market was not prepared for the Fed to cut all the way to zero.
Moreover, the speed of the cuts caught nearly all the market participants off guard.

Take a peek at that top chart again.
Then recall the Fed's message for months heading into 2020: "No more cuts, no more hikes for a year."
Note how closely the 3-month T-Bill, Eurodollars, LIBOR, and SOFR all tracked each other, until they didn't.


Hooray!?
Hooray, the Fed has SOFR under control. But what about LIBOR and Eurodollars?

Eurodollars are the most widely traded futures contract. And despite all the time allotted, the market is still not prepared for the switch from LIBOR to SOFR.
Let's return to one of my opening statements "In June 2017, US Federal Reserve Bank's Alternative Reference Rates Committee selected SOFR as the preferred alternative to Libor. The committee has noted the stability of the repurchase market on which the rate is based."

But what about the stability of all those LIBOR and Eurodollar contracts?

Commercial Mortgages on Brink of Collapse
Here's a link that caught my eye: Real Estate Billionaire Barrack Says Commercial Mortgages on Brink of Collapse.
By any chance are those contracts LIBOR based?

Very Deflationary Outcome Has Begun: Blame the Fed
The Fed is struggling mightily to alleviate the mess it is largely responsible for.
I previously commented a Very Deflationary Outcome Has Begun: Blame the Fed

The Fed blew three economic bubbles in succession. A deflationary bust has started. They blew bubbles trying to prevent "deflation" defined as falling consumer prices.

BIS Deflation Study
The BIS did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
For a discussion of the study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Deflation is not really about prices. It's about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.


Assessing the Blame
Central banks are not responsible for the coronavirus. But they are responsible for blowing economic bubbles prone to crash.
The equities bubbles before the coronavirus hit were the largest on record.


System Wide Margin Call
Please note "The worst scramble for cash is happening in an opaque corner of the market that the Fed can’t control."
Unfortunately, We're Looking at a System-Wide Margin Call

The Federal Reserve ushered out a second wave of quantitative easing Monday. But the worst scramble for cash is happening in an opaque corner of the market, where Chairman Jerome Powell has little control. What we’re witnessing is a system-wide margin call.


With the coronavirus outbreak intensifying, asset managers are getting squeezed by a record outflow from bond funds and billions more from stock funds. Even bigger withdrawals are probably happening in the over-the-counter world, where trades are conducted out of public eye, through broker-dealers. When traders get margin calls, they resort to selling their most liquid assets, usually stocks and U.S. Treasuries. This only deepens the slide.

As of June 2019, the notional amount of such derivatives rose to $640 trillion, the highest since 2014, data provided by Bank of International Settlements show. Gross market value, which gauges how much money would be transferred if all trades shut down, totaled about $12 trillion in mid-2019, 30% lower than in 2014.
In ordinary times, gross market value is a better gauge of the amount at risk because of netting agreements. If a bank is $99 short on a trade and $99.10 long with other clients, its exposure is only 10 cents.


But we live in extraordinary times, and gross market value can also serve as a proxy for how much money the financial system has put aside to sustain that $640 trillion OTC derivatives exposure, according to research conducted at Prerequisite Capital. As of last June, the margin requirement, which the firm defines as the ratio between gross market value and notional amount, was 1.9% — a record low. In other words, there isn’t enough balance sheet provision for black swan events.
From risk parity strategies to statistical arbitrages, the coronavirus is unraveling the most sophisticated of trades. This is a reminder that there’s only so much hedging we can do. Today you’re in, tomorrow you’re out.

Mad Scramble to Rebalance $640 Trillion
So, we have a mad scramble for cash with $640 trillion in derivatives floating around.
If you prefer, the actual gage is a a mere $12 trillion of which interest rate derivatives are likely the single largest component.


Two Questions

 

1. What can possibly go wrong?
2. Where to from here?

I will leave number one to your imagination.

In regards to number 2, US Output Drops at Fastest Rate in a Decade

More importantly, please consider Nothing is Working Now: What's Next for America?

I discuss 20 things that are likely.

Final Question
I leave you with one simple question:
Got Gold?


Mike "Mish" Shedlock

https://www.zerohedge.com/markets/wh...ops+to+zero%29


Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,

“The process by which money is created is so simple that the mind is repelled.” – JK Galbraith

By formally announcing quantitative easing (QE) infinity on March 23, 2020, the Federal Reserve (Fed) is using its entire arsenal of monetary stimulus. Unlimited purchases of Treasury securities and mortgage-backed securities for an indefinite period is far more dramatic than anything they did in 2008.

The Fed also revived other financial crisis programs like the Term Asset-Backed Securities Loan Facility (TALF) and created a new special purpose vehicle (SPV), allowing them to buy investment-grade corporate bonds and related ETF’s. The purpose of these unprecedented actions is to unfreeze the credit markets, stem financial market losses, and provide some ballast to the economy.

Most investors seem unable to grasp why the Fed’s actions have been, thus far, ineffective. In this article, we explain why today is different from the past. The Fed’s current predicament is unique as they have never been totally up against the wall of zero-bound interest rates heading into a crisis. Their remaining tools become more controversial and more limited with the Fed Funds rate at zero. Our objective is to assess when the monetary medicine might begin to work and share our thoughts about what is currently impeding it.

All Money is Lent in Existence.

That sentence may be the most crucial concept to understand if you are to make sense of the Fed’s actions and assess their effectiveness.

Under the traditional fractional reserve banking system run by the U.S. and most other countries, money is “created” via loans. Here is a simple example:

 

1. John deposits a thousand dollars into his bank
2. The bank is allowed to lend 90% of their deposits (keeping 10% in “reserves”)
3. Anne borrows $900 from the same bank and buys a widget from Tommy
4. Tommy then deposits $900 into his checking account at the same bank
5. The bank then lends to someone who needs $810 and they spend that money, etc…

After Tommy’s deposit, there is still only $1,000 of reserves in the banking system, but the two depositors believe they have a total of $1,900 in their bank accounts.

The bank’s accountants would confirm that. To make the bank’s accounting balance, Anne owes the bank $900. The money supply, in this case, is $1,900 despite the amount of real money only being $1,000.

That process continually feeds off the original $1,000 deposit with more loans and more deposits. Taken to its logical conclusion, it eventually creates $9,000 in “new” money through the process from the original $1,000 deposit.

To summarize, we have $1,000 in deposited funds, $10,000 in various bank accounts and $9,000 in new debt. While it may seem “repulsive” and risky, this system is the standard operating procedure for banks and a very effective and powerful tool for generating profits and supporting economic growth. However, if everyone wanted to take their money out at the same time, the bank would not have it to give. They only have the original $1,000 of reserves.


How The Fed Operates

Manipulating the money supply through QE and Fed Funds targeting are the primary tools the Fed uses to conduct monetary policy. As an aside, QE is arguably a controversial blend of monetary and fiscal policy.

When the Fed provides banks with reserves, their intent is to increase the amount of debt and therefore the money supply. As such, more money should result in lower interest rates. Conversely, when they take away reserves, the money supply should decline and interest rates rise. It is important to understand, the Fed does not set the Fed Funds rate by decree, but rather by the aforementioned monetary actions to incentivize banks to increase or reduce the money supply.

The following graph compares the amount of domestic debt outstanding versus the monetary base.


https://zh-prod-1cc738ca-7d3b-4a72-b...ages/1-9_2.png

Data Courtesy: St. Louis Federal Reserve

Why is QE not working?

So with an understanding of how money is created through fractional reserve banking and the role the Fed plays in manipulating the money supply, let’s explore why QE helped boost asset prices in the past but is not yet potent this time around.

In our simple banking example, if Anne defaults on her loan, the money supply would decline from $1,900 to $1,000. With a reduced money supply, interest rates would rise as the supply of money is more limited today than yesterday. In this isolated example, the Fed might purchase bonds and, in doing so, conjure reserves onto bank balance sheets through the magic of the digital printing press. Typically the banks would then create money and offset the amount of Anne’s default. The problem the Fed has today is that Anne is defaulting on some of her debt and, at the same time, John and Tommy need and want to withdraw some of their money.


The money supply is declining due to defaults and falling asset prices, and at the same time, there is a greater demand for cash. This is not just a domestic issue, but a global one, as the U.S. dollar is the world’s reserve currency.


For the Fed to effectively stimulate financial markets and the economy, they first have to replace the money which has been destroyed due to defaults and lower asset prices. Think of this as a hole the Fed is trying to fill. Until the hole is filled, the new money will not be effective in stimulating the broad economy, but instead will only help limit the erosion of the financial system and yes, it is a stealth form of bailout. Again, from our example, if the banks created new money, it would only replace Anne’s default and would not be stimulative.


During the latter part of QE 1, when mortgage defaults slowed, and for all of the QE 2 and QE 3 periods, the Fed was not “filling a hole.” You can think of their actions as piling dirt on top of a filled hole.


These monetary operations enabled banks to create more money, of which a good amount went mainly towards speculative means and resulted in inflated financial asset prices. It certainly could have been lent toward productive endeavors, but banks have been conservative and much more heavily regulated since the crisis and prefer the liquid collateral supplied with market-oriented loans.

QE 4 (Treasury bills) and the new repo facilities introduced in the fall of 2019 also stimulated speculative investing as the Fed once again piled up dirt on top of a filled hold. The situation changed drastically on February 19, 2020, as the virus started impacting perspectives around supply chains, economic growth, and unemployment in the global economy. Now QE 4, Fed-sponsored Repo, QE infinity, and a smorgasbord of other Fed programs are required measures to fill the hole.
However, there is one critical caveat to the situation.


As stated earlier, the Fed conducts policy by incentivizing the banking system to alter the supply of money. If the banks are concerned with their financial situation or that of others, they will be reluctant to lend and therefore impede the Fed’s efforts. This is clearly occurring, making the hole progressively more challenging to fill.

The same thing happened in 2008 as banks became increasingly suspect in terms of potential losses due to their exorbitant leverage. That problem was solved by changing the rules around how banks were required to report mark-to-market losses by the Federal Accounting Standards Board (FASB). Despite the multitude of monetary and fiscal policy stimulus failures over the previous 18 months, that simple re-writing of an accounting rule caused the market to turn on a dime in March 2009. The hole was suddenly over-filled by what amounted to an accounting gimmick.


Summary

Are Fed actions making headway on filling the hole, or is the hole growing faster than the Fed can shovel as a result of a tsunami of liquidity problems? A declining dollar and stability in the short-term credit markets are essential gauges to assess the Fed’s progress.


https://zh-prod-1cc738ca-7d3b-4a72-b...ke_Money_0.jpg

The Fed will eventually fill the hole, and if the past is repeated, they will heap a lot of extra dirt on top of the hole and leave it there for a long time.

The problem with that excess dirt is the consequences of excessive monetary policy. Those same excesses created after the financial crisis led to an unstable financial situation with which we are now dealing.

While we must stay heavily focused on the here and now, we must also consider the future consequences of their actions. We will undoubtedly share more on this in upcoming articles.

https://www.theburningplatform.com/2...e/#more-215005


Details Of $2 Trillion Coronavirus Stimulus Package Emerge

Via ZeroHedge


While it will take some time to sort through all the pork contained in the massive $2 trillion coronavirus legislation negotiated between the Trump administration and Congressional leaders early Wednesday, here are some of the major provisions via Bloomberg.

https://zh-prod-1cc738ca-7d3b-4a72-b...20pelosi_0.jpg

The bill – which still needs to be passed by the Senate and the House – provides direct help to citizens, businesses, hospitals and state and local governments. According to the report, a vote could come in the Senate as soon as today.

According to Senate Minority Leader Chuck Schumer (D-NY), checks would be cut April 6.
Key provisions via Bloomberg:

 

1. Big Businesses: About $500 billion can be used to back loans and assistance to companies, including $50 billion for loans to U.S. airlines, as well as state and local governments.
2. Small Businesses: More than $350 billion to aid small businesses, including $10 billion in SBA grants of up to $10,000 for small business costs, and $17 billion for SBA to cover six months of payments for businesses with current SBA loans.
3. Hospitals: A $150 billion boost for hospitals and other health-care providers for equipment and supplies.
4. Individuals: Direct payments to lower- and middle-income Americans of $1,200 for each adult, as well as $500 for each child.

Unemployment insurance would be extended to four months, and increased to $600 per week. More workers will be eligible for coverage.

There will also be $30 billion in emergency education funding, $25 billion in transit funding, and $30 billion for the Disaster Relief fund.
Restrictions include:

1. Any company receiving a government loan would be subject to a ban on stock buybacks through the term of the loan, plus an additional year.
2. Executive bonuses will be limited.
3. Steps to safeguard workers must be taken, and a tax credit will encourage employers to keep workers on the payroll.
4. A ban on funds for any company controlled by President Trump or his children, as well as any owned by Vice President Mike Pence, any members of Congress, or heads of executive departments. It will extend to companies controlled by their children, spouses, or in-laws according to Bloomberg.

We will provide more details from the bill as they become available.

Looking ahead to the next round:

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Jake Sherman

-- NOW, WHAT DOES A HOUSE VOTE LOOK LIKE? That's a good q. Both sides hope they will be able to pass this by unanimous consent or a voice vote, but just one lawmaker may object to the request, which will force them into a tricky plan B. We will keep you posted on where this lands

https://usawatchdog.com/greatest-dep...erald-celente/

https://usawatchdog.com/wp-content/u...20-208x300.pngBy Greg Hunter’s USAWatchdog.com


Gerald Celente, a top trends researcher and Publisher of The Trends Journal, says the world is already in an economic depression. Celente explains, “Never in the history of the world has the whole world, or most of the world, been shut down by politicians destroying people’s lives and their businesses. People are going to go bankrupt. You are going to see suicide rates increase. You are going to see crime escalate and people OD’ing on drugs because of depression. . . . Our leaders are totally closing down the economy. Again, this has never been done before. It’s not only Wall Street going down, Main Street went down simultaneously. That is unprecedented. Usually, the markets go down and then the ripple effects start hitting Main Street. This time–boom, they are both down. . . . It’s going to be worse than the Great Depression. It’s going to be the Greatest Depression.”

What’s the biggest problem the economy faces? Celente says, “The debt levels are phenomenal. We have more than $250 trillion of global debt and all the personal debt. How are you going to pay the credit card debt? How about paying the student debt, car loans and the mortgages? What about the electric bill, phone bill and people are out of work because my governor said I should stay home?”

The next play by global governments is to get rid of cash because it carries germs like the coronavirus. Celente says, “We are going to go from ‘Dirty Cash to Digital Trash,’ which is also the title of the current Trends Journal. They’ve got people freaked out. They are going to give us digital trash. That’s what they are doing. They are going to get rid of the currencies that you have.”

After talk of trillions of dollars in new stimulus from Congress this week, what about gold prices? Celente says, “You saw how much the markets went up. How about gold prices? It bounced back $200 per ounce since Friday. . . . The smart money is seeing the fake money being printed, and they are going into gold. Now hear this. Just like the crummy, slimy politicians going after your Constitutional rights and Bill of Rights, they are going to go after your gold. They did it in the last Great Depression, and they are going to do it in the Greatest Depression. You mark my words.”

In closing, Celente says, “I agree with Trump 100% because I have been saying this since the beginning that the cure is going to be worse than the disease. They are destroying the global economy. They are destroying people’s lives. We are going to see crime levels that are unimaginable. Why do you think people are going out and getting guns? Then you are going to see these liberals talking about gun confiscation. Crime is going to escalate, and deaths are going to go through the roof. When people lose everything and have nothing left to lose, they lose it. You are going to see gangs like never before. On the other end, the open borders issue, that is a closed story. They are closing borders all over the world. So, you are not going to hear people say let them in, let them in–that’s over. I agree with Trump. We should go back to business as usual.”

On Trump winning a second term this November, Celente, who calls himself a “political atheist,” says, “It’s a wild card, but I would still go with Trump at this point.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Gerald Celente, Publisher of The Trends Journal, as he gives his top trends and predictions for the virus crisis, the Greatest Depression, gold and silver prices and his pick to win the White House in November.

(To Donate to USAWatchdog.com Click Here)

After the Interview:
https://usawatchdog.com/wp-content/u...-3-232x300.jpgThere is free information on TrendsResearch.com. If you want to become a subscriber of The Trends Journal (which is now weekly) click here.

https://usawatchdog.com/wp-content/t...-connected.png

Related Posts:

 

1. Global Markets Tank When Dems Impeach Trump – Gerald Celente
2. 2020 Predictions on Trump, Economy, War and Unrest – Gerald Celente
3. New Gold Bull Run Already Started - Gerald Celente
4. Trump Bump, No Recession, Rate Cuts Coming – Gerald Celente
5. Impeachment War on USA, Dems Take Guns, Economic Update

https://www.zerohedge.com/economics/...ops+to+zero%29


Authored by Daniel Lacalle,


The Danger Of Estimating Rapid Recovery

In February, the general consensus among large investment banks and supranational entities was that there would be a one-time impact on GDP in the first quarter due to the impact of the coronavirus, followed by a stronger recovery in the form of V.


The IMF anticipated a modest correction to world GDP of 0.1%, and the biggest cut in growth estimates for 2020 was 0.4%.


Those days are over.


https://zh-prod-1cc738ca-7d3b-4a72-b...onomy-2013.jpg


The latest round of world growth reviews includes a reduction in growth estimates for the first and second quarters and a very modest recovery in the third and fourth quarters. Estimates of average GDP are now down 0.7%, and JP Morgan expects the eurozone to enter a deep recession in the next two quarters (-1.8% and -3.3% in the first and second quarters), followed by a very poor recovery that would still leave the estimate for the entire year 2020 in contraction.

The investment bank also assumes that the United States will fall by 2% and 3% respectively, but with modest growth throughout the year (considerably more than consensus)...

https://zh-prod-1cc738ca-7d3b-4a72-b...ges/bfm952.jpg

Capital Economics estimates a year-long blow to the US economy that would cut 0.8% from previous estimates, although it continues to predict growth, but a greater impact in the euro area, with growth throughout the year 2020 to an average of -1.2%, led by a prediction of -2% for Italy. This, unfortunately, seems only the beginning of a cycle of decline that adds to the problem of an economy that was already slowing down in 2019.

The decision to close air travel and to close all non-essential business is now a reality in the world's major economies. The United States has banned all European flights, while Italy enters a complete blockade, Spain declares a state of emergency and France close all public places and nonessential businesses. These decisions are key to containing the spread of the virus and trying to prevent the collapse of health systems, and our thoughts are with all those infected. Closing travel and business has a negative domino effect on the economy. It is an important measure to prevent a rapid spread of the disease and there will be more cancellations of events and activities.



By now, at least we have a clearer picture of the severity of the pandemic, and we can discuss the economic consequences, so I think it's important to remind readers of some important factors:

 

1. We cannot assume that the above estimates are too pessimistic. If we have learned anything from the history of world growth estimates, it is that most of us tend to be more optimistic than realists even in periods of crisis. Most analysts did not see a crisis in 2008 and, most importantly, most did not see it in 2009, when it was evident. It is true that 80 percent of the estimates at the beginning of any year have to be revised, but it is not because they are too pessimistic, but rather the opposite.
2. Calls for large tax packages to offset the pandemic may be futile. Allen-Reynolds of Capital Economics warned that "even if governments agreed to a broader fiscal and spending package, the economic impact would be much less than in the past, particularly if the fiscal stimulus was concentrated in Germany," because the production gaps are almost non-existent. This is not a demand problem, but a supply shock, and supply shocks with bricks, mortar, and deficit spending are not addressed.
3. A quick recovery in the third quarter is now virtually impossible. The collapse of the developed economies is already guaranteed and will probably take us more than a couple of weeks. The collapse of emerging economies is likely to start in May and affect estimates for 2020 and 2021. All the analyzes we've seen so far only take into account the factors of a recession in 2020, not a crisis, let alone a major impact on the economy in 2021, but the financial implications of an already over-leveraged world add a series of credit events to an economic collapse.
4. The latest wave of downgrades is already a large-scale stimulus, rate cuts, and quantitative easing. The diminishing returns of monetary easing were already evident in 2018 and especially in 2019, with global manufacturing purchasing managers (PMI) indices contracting and growth estimates dropping significantly throughout the year. Average downward growth reviews by country averaged 20% between January and December, amid a coordinated and massive injection operation by the central bank that injected up to $ 170 billion a month into the economy (considering the Banco Popular de China (PBOC), the Bank of Japan (BOJ), the European Central Bank (ECB) and the Federal Reserve) and saw widespread cuts in rates.
5. The economic implications of a pandemic will not be resolved with a massive increase in spending. Governments will implement large demand policies that are the wrong response to a collapse of the economy. Most companies will experience a collapse in sales and the consequent accumulation of working capital, and none of this will be resolved by deficit spending. A supply shock cannot be mitigated with demand policies, which increase debt and excess capacity in sectors already in debt and swollen and do not help sectors that are experiencing an abrupt collapse in activity.
6. A forced temporary collapse must also include the collapse of the tax collection system. Governments already finance themselves at negative rates. They must eliminate (not defer) the payment of taxes to companies in the crisis period to avoid a massive increase in unemployment and a domination of bankruptcies, and facilitate working capital lines with zero rates to allow companies and self-employed workers circumvent a closure. Governments that make the mistake of maintaining the current fiscal structure or simply extend the payment period for six months will see the huge negative consequences of a closure in the next nine months.

If, as expected, the collapse spreads to more countries every week, the negative effects on the economy will be longer and exponential, and the mirage of a recovery in the third quarter will be even less likely.

It is very likely that the closure of the main developed economies will be followed by a closure of the emerging markets, creating a shock to supply that has not been seen in decades. The adoption of massive inflationary and demand-driven measures in a shock to supply is not only a mistake, but is the recipe for stagflation and guarantees a multi-year negative impact generated by the increase in debt, the weakening of productivity, the increase in inflation in non-reproducible goods while deflation is making headlines and economic stagnation.

https://www.hussmanfunds.com/comment/mc200326/

Snippet:
As of March 1, 2020, the growth rate of COVID-19 cases in countries other than China is running at 25% daily. The expansion in the number of locations is also problematic, because the first person in each new location is local ‘patient zero.’ Unless serious containment efforts reduce this growth rate substantially, a continuation would produce a 1000-fold increase in cases over the coming month. Even that might not seem so bad, until the end of April, when the same rate of growth would push the number of COVID-19 cases beyond the 45 million U.S. flu cases observed in 2017-2018. That is exactly how this little coronavirus with twice the R0 of the seasonal flu, and a mortality rate that is evidently an order of magnitude higher, will produce utter chaos if containment efforts are not taken seriously.
– John P. Hussman, Ph.D., March 1, 2020

Public health notes
I want to begin with an update and extension of observations and analysis relating to SARS-CoV-2 (COVID-19) that I’ve included in these commentaries since January. As usual, I’ll try to separate my comments about this epidemic from investment discussion as much as possible.

As March began, there were 68 U.S. cases of SARS-CoV-2 (COVID-19). At present, less than a month later, there are over 68,000. Though containment efforts were broadly dismissed early in the month, they have become more pointed in the past two weeks, particularly in certain states like New York. Even with a 1000-fold increase in cases during March, several corners of the media characterize containment efforts as an overreaction, and describe this epidemic as “like the flu.”
We still have a chance of limiting the number of fatalities that result, but not with dismissive approaches to containment, which I view as menacing to public health.
A few observations regarding the public health implications surrounding the novel coronavirus may be helpful (see some of my research papers, this article in Nature for example, to assure yourself that I’m not shooting wildly from the hip).

First, this is not influenza (the “flu”). It’s actually a novel variant of SARS. The proper name of this virus is SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), and the associated disease is called COVID-19 (coronavirus disease 2019). As the name implies, SARS-CoV-2 can, in its severe cases, produce acute inflammation of the respiratory system, which is the typical cause of fatalities.

Outside of China, daily case growth has eased to 15% since January, down from 25% in early-March as a result of strong global containment efforts. In the U.S., case growth has averaged over 30% per day during March, but shorter-term compound growth has recently dipped to 29% a day.

With over 68,000 U.S. cases already, even if present containment efforts were to immediately crush the growth rate to just 10% per day, the U.S. will exceed one million cases during April. Needless to say, that’s a narrow window to boost equipment, personnel and capacity. Reducing case growth to a 15% rate would put U.S. cases over 4.5 million in 30 days, potentially with hundreds of thousands of fatalities. We need these numbers to be wrong, and that’s exactly why containment is critical. Lack of containment is exactly what produces 30 million U.S. influenza cases every year, though with a far lower fatality rate than SARS-CoV-2.
It’s common to quote a 2% fatality rate, but the observed case fatality rate (CFR) of SARS-CoV-2 is actually now 4.5% (fatalities/reported cases). By comparison, the fatality rate of the seasonal flu is just 0.13%
.
While I strongly believe that the true fatality rate of SARS-CoV-2 is many times the rate for influenza, I don’t believe that 4.5% is the actual number because there are clearly lots of cases that are unreported, and many are likely to be “sub-clinical,” meaning that they may not show symptoms. The problem is that regardless of whether you’ve got a high fatality rate and a smaller number of cases, or a small fatality rate with a larger number of cases, the number of fatalities is exactly the same. Emphatically, the “ascertainment rate” (reported cases/true cases) cancels out in that calculation.

So while reported cases depend on ascertainment, fatalities are “sufficient statistics” in themselves. Indeed, my impression is that the CFR has been trending higher precisely because reported cases are increasingly lagging actual cases. That’s good in the sense that the true fatality rate is probably much lower than the observed CFR, but it’s bad in the sense that true cases are probably growing much faster than we think. In any case, to dismiss the growing number of fatalities based on the idea of “unreported cases” is to lack an understanding of this arithmetic.

Understanding market volatility
A market crash is simply a low risk-premium spiking higher. That’s not hyperbole, and it’s not a market call. It’s just a fact. As I’ve noted in previous market cycles, every market crash is always driven first and foremost by a spike in risk premiums. During the 2000-2002 market collapse, I wrote: ‘Remember that favorable trend uniformity is essentially a signal that investors have a robust preference for taking risk. Right now, there is no evidence of the sort. In a market with razor thin risk premiums, any increase in risk aversion can lead to spectacular price declines.’
– John P. Hussman, Ph.D., February 25, 2000

A share of stock is nothing but a claim on a very long-term stream of expected future cash flows that will be delivered into the hands of investors over time. If a security is expected to deliver a single $100 payment, a decade from today, the return that investors can expect is directly related to the price they pay.
If investors pay $27 today for an expected future payment of $100 a decade from now, they can expect an average return of about 14% annually on their investment, provided that the $100 future cash flow is actually delivered.
If investors pay $39 today, they can expect an average return of about 10% annually.
If investors pay $56 today, they can expect an average return of about 6% annually.
If investors pay $82 today, they can expect an average return of about 2% annually.
If investors pay $100 today, they can expect an average return of zero.
If investors pay more than $100 today, they can expect to lose money for more than a decade.

The basic arithmetic that relates future cash flows, long-term returns, and current prices together is called “discounting.” For example, show me a security that will provide a $100 payment in 10 years, and tell me you need an expected return of 8%, and I can calculate the price: $100/(1.10)^10 = $46.32.
Conversely, tell me that the security is currently priced at $46.32, and I can estimate that the 10-year expected annual return is ($100/$46.32)^(1/10)-1 = 8%. Again, all of this assumes that the future cash flow will actually be delivered. Since there’s some uncertainty there, investors usually demand a “risk premium” well above the interest rate on Treasury bonds.

If investors drive valuations high enough to “price in” zero or negative returns, any substantial increase in the expected return demanded by investors will result in a price collapse. Value a security for extremely high returns, and any decline in the expected return demanded by investors will result in a price advance.
Here’s the thing. Given that a share of stock is a claim on decades and decades of discounted future cash flows, even entirely wiping the first year or two of cash flows does very little to the value of all those remaining cash flows.

But value that very long-term stream of future cash flows at extreme prices that imply zero returns, and even a modest increase in the expected return demanded by investors will trigger breathtaking losses.

That’s exactly what happened last month. When it comes to the financial markets, we don’t even need to talk our public health crisis, or build scenarios around it. We all just need to understand what the word “investment” actually means.

As I noted in February, “I continue to expect the S&P 500 to lose about two-thirds of its value over the coming years. Avoiding profound market losses over the completion of this cycle would require a permanently high plateau in valuations, at their present hypervalued extremes, and the absence of even one episode of significant risk-aversion in the future.”

What we’re seeing today in the financial markets is just an initial episode of significant risk aversion.
It’s worth noting that the deepest economic decline since the Great Depression involved a cumulative decline of 5.6% of annual real GDP. It’s difficult to imagine that this downturn will be smaller. Still, stocks are claims on decades and decades of future expected cash flows. Even if earnings are clobbered over the coming year, that’s a very small fraction of the entire stream.

https://www.hussmanfunds.com/wp-cont.../mc200326d.png

What’s likely to do harm to investors over the completion of this market cycle isn’t the impact of a year or two of lost cash flows. The likely source of actual damage is the roughly 65% loss in value (from the February high) that would be required simply to bring the most reliable valuation measures to their run-of-the-mill historical norms. The extreme financial valuations that preceded this crisis have made substantial additional stock market losses likely.

The other source of potential disruption will be a certain amount of bankruptcy that was largely baked in the cake, as years of Fed-induced yield-seeking speculation enabled companies to issue a mountain of junky paper in the form of BBB bonds, leveraged loans, and covenant-lite debt.

Though I was never a fan of recapitalizing the banking system after the global financial crisis by starving investors of safe yield, the bright spot is that the March 2009 accounting change to FAS 157 (mark-to-market) – which was really what ended the Global Financial Crisis – may reduce the likelihood of similar bank failures during the present crisis. That’s because even if the bond markets become distressed, banks will not have to mark their securitized loans to prevailing market prices if they reasonably expect the underlying borrowers to be solvent on the other side. In a crisis like this one, it’s good to have a bright spot.

Three considerations to know
The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight. The higher the price investors pay for a set of future cash flows, the lower the return they will enjoy over time. Investment is not independent of price. Whatever they’re doing, it’s not ‘investment.’ Presently, we observe the combination of hypervaluation and negative market internals, which I view as a ‘trap door’ situation.
– John P. Hussman, Ph.D., January 30, 2020

I’ve often observed that while we consider a very broad range of market conditions, a few factors have a particularly strong place in our investment discipline, particularly 1) valuations, and 2) market internals. To a lesser degree (especially since late-2017) we can also add 3) overextension.

Valuations provide a great deal of information about long-term investment prospects, as well as the extent of potential market losses over the completion of a given market cycle. The chart below, for example, shows our estimate of likely 12-year average annual nominal total returns for a conventional portfolio mix invested 60% in the S&P 500, 30% in Treasury bond, and 10% in Treasury bills. I noted in mid-February that this estimate had declined below zero for the first time in history. Even the September 1929 market extreme did not do that. The little arrow at the right side of the chart shows the impact of the recent market selloff on these return prospects (as of 3/18/20 at about 2400 on the S&P 500).

https://www.hussmanfunds.com/wp-cont.../mc200326e.png

Of course, if overvaluation alone was enough to drag prices lower, we would never observe hypervaluation like 1929, 2000, and February 2020, because those market advances would have been weighted down at much lesser extremes. Likewise, if undervaluation was enough to drive prices higher, we would never observe secular valuation lows like 1949, 1974 or 1982.

Instead, what drives market returns over shorter segments of the market cycle is the extent to which investor psychology is inclined toward speculation or risk-aversion. Since speculation tends to be indiscriminate, and risk-aversion tends to be selective, we find that the best gauge of investor psychology is the uniformity or divergence of prices across thousands of individual securities, industries, sectors, and security-types, including debt of varying creditworthiness. I describe this sort of uniformity with the term “market internals.”

The chart below presents the cumulative total return of the S&P 500 in periods where our measures of market internals have been favorable, accruing Treasury bill interest otherwise. The chart is historical, does not represent any investment portfolio, does not reflect valuations or other features of our investment approach, and is not an assurance of future outcomes.

https://www.hussmanfunds.com/wp-cont.../mc200326f.png

A third consideration is the extent to which market action is “overextended” in one direction or another. These measures include gauges of overbought/oversold conditions, as well as broad syndromes that combine extremes in valuation, investor sentiment, and price action. In other market cycles across history, for example, extreme combinations of “overvalued, overbought, overbullish” conditions were usually followed by abrupt air-pockets, panics, or market crashes.

Several instances of severe compression have emerged in recent weeks, one which prompted my March 1 interim comment Clearing Rallies and Crashes (Buckle Up) and was immediately followed by a scorching “fast, furious, prone-to-failure” clearing rally. Because investment conditions have been more volatile and time-consuming than more frequent market commentaries allow, I’ve tried to post general short-term financial market observations to my personal Twitter feed (https://twitter.com/hussmanjp). Again, I cannot respond to questions about our investment funds on that platform.

Though measures of “overextension” can be useful, we’ve abandoned our willingness to place these overextended “limits” above the condition of market internals – regardless of whether the market is overextended on the upside, or the downside. The main feature of the recent bull market that was truly “different” from history was this: once the Federal Reserve drove interest rates to zero, investors became willing to speculate regardless of overextended conditions, however extreme.
In late-2017, I finally threw up my hands and abandoned the idea that there was any reliable “limit” to speculation at all, and we adapted our investment strategy accordingly. While sufficiently extreme conditions can still justify a neutral market outlook, we no longer adopt or amplify a bearish outlook unless our measures of market internals are explicitly unfavorable.


Navigating turbulence
I expect that the most valuable aspect of our investment discipline over the completion of this cycle will be our ability and willingness to flexibly respond to changes in observable market conditions as they emerge. While my impression is that passive investment strategies will become nearly excruciating over the completion of this cycle, there’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What’s needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.

Those changes will take several forms, and because they often compete, several principles are essential. What follows isn’t so much investment advice – investors can do what they wish – but a general description of how I think about our investment discipline.

First, neither valuations nor overextended conditions create “floors” or “ceilings” for the market. Our investment discipline has admirably navigated decades of market cycles, but my belief in overextended speculative “limits” was very detrimental in this one. Learn what we learned.

It’s true that lower valuations are better, in the sense that investors can have more confidence (but not assurance) that any near-term losses will recovered. Extreme valuations – like those we observed at the February highs – mean that investors might have to wait more than a decade to break even after a substantial market loss (see Going Nowhere in an Interesting Way for a detailed historical analysis of this point). In either case, it’s best to operate on the idea that there is no such thing as a floor or a ceiling.

Second, the condition of market internals helps to set the “boundaries” of our investment stance. If internals are unfavorable, it’s best to avoid a fully-unhedged position, much less a leveraged one. Some conditions might warrant a generally constructive outlook with a “safety net.” But to use current market conditions as an example, I would consider it terribly imprudent to step into an unhedged position, in a still-overvalued market with unfavorable market internals, just because short-term market action is highly oversold.

Conversely, the central adaptation to our investment discipline in recent years (late-2017) rules out adopting or amplifying a bearish market outlook – regardless of overbought extremes – when our measures of market internals are still favorable.

Finally, extremely overbought conditions can warrant a neutral market outlook even when market internals are positive, and oversold conditions can warrant a constructive outlook (with a safety net) even when market internals are negative. Again, however, just as I rule out adopting a bearish outlook when market internals are positive, I would also rule out adopting a leveraged or fully-unhedged outlook when market internals are still negative.

While my impression is that passive investment strategies will become nearly excruciating over the completion of this cycle, there’s no need to worry about various scenarios, to project targets, to predict market movements, or to become tied to any particular forecast about future economic or financial events. This is not about prediction, and projection, and forecasting. What’s needed is the ability and willingness to flexibly respond to changes in observable market conditions as they emerge.

The most positive and the most negative market conditions we identify typically occur when all of these components are aligned. For example, as I noted in February, the combination of a hypervalued market with divergent internals and extreme overextension increasingly suggested the likelihood of what I described as “trap door” market losses. Conversely, the combination of depressed valuations with fresh improvement in market actions following oversold conditions is typically what we observe at the beginning of a new bull market. Despite my mislabeled identity as a “permabear” (largely as a result of my admitted and addressed error in the recent bull market), the fact is that I’ve adopted a constructive or leveraged market outlook after every bear market collapse in over three decades.


What now?
A good way to place market fluctuations into perspective, is to think about them from the standpoint of long-term, intermediate-term, and short-term conditions. Those considerations are nicely captured by the central components of our investment discipline. Valuations are extremely informative about long-term returns and full-cycle risks. The condition of market internals is an essential gauge of speculation vs. risk-aversion across shorter segments of the market cycle. And extremely compressed “oversold” conditions or extremely overextended “overbought” conditions are often helpful in gauging the potential for short-term clearing rallies or air-pockets (again, the condition of internals should limit one’s bullish or bearish response to these).

If you’re a long-term investor, the recent decline has pushed likely 10-12 year S&P 500 total returns back above zero (they were negative in Feb). The “CURRENT” line is based on prevailing valuations as of 3/26/20, with the S&P 500 at 2570 intraday. For investors who are comfortable with estimated 10-year SPX returns of about 1.4% annually, we’re here. While this estimate is better that the S&P 500 prospects we estimated, in real-time, at both the 2000 and recent February market extremes, S&P 500 valuations are presently similar to those at the 2007 market peak, and still far from what we’ve typically observed at cyclical lows.

https://www.hussmanfunds.com/wp-cont.../mc200326g.png

From an intermediate standpoint, when investors are inclined to speculate they tend to be indiscriminate about it. Ragged, divergent action here reflects risk aversion. At present, our measures of internals remain unfavorable on this front. That may change, but given still rich valuations from a historical perspective, an improvement in internals would most probably encourage an investment outlook that might best be described as “constructive with a safety net.” Opportunities to embrace market exposure without hedges, or even using leverage, will likely arrive at substantially lower valuations.

From a short-term perspective, we’ve observed several instances of “short-term compression” in recent weeks, which are often permissive of fast, furious, “clearing rallies” to reduce that compression. I say “permissive” because while compression often permits scorching rallies, there’s absolutely no assurance that an oversold market will not become decidedly more oversold. I’m concerned and frankly distressed here that the current drivers of risk aversion continue to increase exponentially. It’s not at all clear to me that investors have fully accounted for what this is likely to mean for the economy or life as they know it, particularly over the coming months (not weeks). For my part, I’m encouraged when my work is helpful to others, but anyone who imagines that I take joy in this environment has utterly no concept of who I am.

Review all investment exposures
I’ve been asked whether it is “too late” to adopt a defensive stance. That’s a difficult question, but it’s also one that’s worth addressing.
First, “panic selling into a decline” is typically an action that ignores valuations and likely future returns.

Nobody should do that.

However, to the extent that an investor has more exposure than appropriate (for example, as the result of holding an investment position that could not actually tolerate a further 50% market loss without devastating one’s retirement plans), and provided that an investor fully considers the prevailing level of valuations and the associated level of estimated future returns, then yes – my view is that any inappropriate exposure should be corrected – ideally on strength – sooner rather than later.

That doesn’t mean “sell.” That means examine your risk exposure based on your own risk-tolerance, your own investment plans, and the potential market loss that would be required to draw valuations to run-of-the-mill historical norms. See my recent monthly market commentaries for more detail on those estimates.
The chart below offers some context regarding market cycles. Specifically, we can think of long-term market returns as having a “durable” component and a “transient” component. The durable component is the market gain that is not surrendered at some later date. If you examine the data, you’ll find that the durable component typically represents market advances that bring valuations up to historical norms. In contrast, the transient component is the market gain that is typically surrendered by some later date, often several years into the future. You’ll find that the transient component typically represents market advances that bring valuations far beyond historical norms.

Probably needless to say, I view the speculative market gains of recent years as almost wholly transient.

https://www.hussmanfunds.com/wp-cont.../mc200326h.png

The quick calculation is to consider the possibility that we actually see just 1.4% S&P 500 total returns over the coming 10-year period, from current valuation levels, with a potential (not “predicted” or inevitable) interim loss on the equity component of the portfolio on the order of about 50% from here, which would be gradually recovered. Consider what that would mean in dollars. If that outcome would be unfortunate, but tolerable, there may be no need to adjust your exposure to market risk. If it would not be tolerable, review your exposure.

Of course, my preference is to ask these questions when the markets are elevated, and I hope that I’ve succeeded in prompting these considerations already. As I wrote in early-October 2018 (just before the Q4 plunge), “The initial decline of a bear market tends to be rather violent. Once prices have dropped sharply, it becomes extremely uncomfortable for investors to reduce their exposure to risk by selling into a decline, even when the prospect of additional losses remains very high. Instead, they often ride out the entire bear market and eventually abandon stocks in a final panic. If investors don’t get out at the highs, they end up getting out at the lows.”

The S&P 500 is currently at about the same level it was in January 2019. Though market valuations are about 24% lower than they were at the 2000 and February 2020 highs, they’re actually about the same level we saw at the October 2007 market peak, and still about double the historical norm.
This is not the best time for investors to be examining and right-sizing their investment exposure, but it’s certainly not the worst.

One bit of advice that friends have often found helpful: Anytime you make a portfolio change, start by accepting that you are guaranteed to have regret. If you sell some of your holdings and the market goes up, you’ll regret having sold anything. If you sell and the market goes down, you’ll regret not having sold more. If you don’t sell and the market goes up, you’ll regret not having bought. The key is to balance a careful consideration of valuations, expected returns, potential risks, and prevailing market conditions, along with all of those potential regrets. If you begin by accepting that there will be regret of one form or another, you won’t feel paralyzed, and you’ll consider more possibilities than you might otherwise.

On gold, interest rates and inflation
Inflation has an enormous psychological component: it reflects a loss of confidence that the liabilities issued by the government will retain their ability to purchase the same amount of real goods and services that they can purchase today. The key uncertainty about inflation is that it is largely a psychological event, and depends heavily on the confidence, or loss of confidence, by the public that government liabilities (bonds and base money) can be held without deterioration in their value. Large shifts in inflation are typically linked to discrete events that provoke a loss of confidence in price stability itself – like the trifecta of Great Society deficits, Nixon closing the gold window, and an oil embargo, or the combination of money printing and a supply shock, like using deficit finance to pay striking workers in the Ruhr.
– John P. Hussman, Ph.D.

One of the knee-jerk responses to the current crisis is that investors have quickly responded as if we are facing the same deflationary conditions that emerged during the global financial crisis. While we can’t rule out contagion to the banking system, my impression – as I noted earlier – is that the ability of banks to mark certain assets “to model” rather than “to market” substantially lessens the risk of deflationary contagion.

Instead, my impression is that there’s a growing risk that we’ll see an extremely large issuance of government liabilities, both in the form of Treasury debt and in the form of monetary base (currency and bank reserves, resulting from Federal Reserve purchases of government-backed securities). The problem is that this issuance is also likely to be accompanied by a “supply shock” in the quantity of output produced by the economy.

Rapidly increasing government liabilities, coupled with supply shocks, form exactly the sort of combination that has historically provoked destabilization of confidence in the ability of government liabilities to hold their value in terms of real goods and services.

Again, it’s possible that a sufficient amount of financial stress and credit losses will encourage investors to chase cash as a safe haven (which would support the value of cash despite its increased quantity, and defer inflationary pressures). But given already large deficits coupled with the likelihood of constrained output, my impression is that inflation hedges may be useful for some portion of a diversified portfolio. Still, be careful to observe that some inflation hedges, like precious metals stocks, can also be quite volatile.

Meanwhile, I’m not at all convinced that a 0.86% yield on a 10-year Treasury bond can really be considered an “investment.” Rather, it seems to reflect speculation about zero or negative long-term rates, and the ability of the government to create liabilities in nearly unlimited quantities despite reduced economic output.

I’ll take the over.

Wishing you, your family, and your loved ones health and peace. With gratitude to all of you who make our work part of your life. Best – John


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https://www.zerohedge.com/political/...ops+to+zero%29

Authored by Mike Whitney via The Unz Review,
The Senate’s $2 Trillion Coronavirus Relief Package is not fiscal stimulus and it’s not a lifeline for the tens of millions of working people who have suddenly lost their jobs. It’s a fundamental restructuring of the US economy designed to strengthen the grip of the corrupt corporate-banking oligarchy while creating a permanent underclass that will be forced to work for slave wages. This isn’t stimulus, it’s shock therapy.

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Who can survive on $1,200 for one, two or three months time? And what happens to the millions of people who paid no taxes last year? Are they supposed to scrape by on nothing? Congress knows that most households live paycheck to paycheck. With no savings how will they pay the rent, the electric bill, the phone and the cable? Congress is quibbling over an extra $600 per month unemployment for those who are lucky enough to get it, when most people are just trying to figure out how they’re going to survive, how they’re going to pay the mortgage, when they’ll be able to go back to work, and whether their job will still be there when this nightmare is finally over?

Did you know that “if you don’t already have direct-deposit information on file with the IRS from previous tax returns, you won’t get the emergency funds for up to 4 months”? That means millions of people will have zero income for 4 months! What will become of them? Where will they go? Who will provide them with shelter and food? Shouldn’t congress be asking these questions?

And what happens to the 50% of the American people who had less than $400 saved before the crisis hit? What happens to them when they fall between the cracks and lose their apartments, lose their jobs, and lose their ability to maintain their tenuous standard of living? These people will never regain their financial footing. Never. It’s a death sentence. We’re going to see an explosion of homelessness, drug addiction, depression, alcoholism, suicide and crime unlike anything this country has ever seen before. Are the imbeciles in congress so blind that they can’t see that they’re condemning a large part of the population to permanent, inescapable, grinding poverty and desperation? Can’t they see that?

Do you understand why this bill is being rushed through congress?
It has alot to do with the falling stock market but more precisely with the hundreds of corporations that have been hawking bonds to gullible investors who thought they were buying the debt of responsible, well-managed companies that used the money to improve their product-line, train workers, or build new factories. But instead, greedy CEOs have been using the money to buy shares in their own companies to boost executive compensation and reward shareholders. It’s a multi-trillion dollar scam that blew up in their faces causing a complete freeze-over in the corporate bond market. That’s what’s really going on, there’s a massive credit crunch that has a stranglehold on the bond market and there are only two ways to fix the problem:

1. Let the failing corporations default and pick up the pieces after the dust settles or…
2. Launch a major $4.5 trillion bailout for busted corporations that drove their companies off a cliff.

Those are the two choices. Naturally Treasury Secretary Mnuchin chose the latter which suggests that the real motive for giving working people the $1,200 checks was simply to divert attention from the massive trillion dollar bailout to teetering corporations. That’s the real objective of the so-called fiscal stimulus bill. It’s another giant welfare check for the plutocrats.

The centerpiece of the new legislation is a provision for $425 billion giveaway to big business. The New York Times explains what is going on in a recent article. Here’s an excerpt:
“Republican senators have suggested creating a fund of $425 billion at the Treasury Department that the Fed could use to back emergency lending facilities — which would enable such programs to grow far beyond that scale.

Because the Fed cannot take on substantial credit risk itself, the Treasury Department backs its emergency lending, using money from a fund that contains just $95 billion. Treasury Secretary Steven Mnuchin on Sunday suggested that the new money in the Republican bill could be leveraged by the Fed to back some $4 trillion in financing.

“We do have limited amounts of money we’re using before Congress passes this bill, so we’re not waiting on Congress,” Mr. Mnuchin said in an interview on CNBC on Monday. “As Congress gives us the authority, we’ll be increasing the facilities substantially.” (“The Fed Goes All In With Unlimited Bond-Buying Plan”, New York Times)

What does it mean?

It means that Mnuchin is transforming the US Treasury into a hedge fund. That’s what it means. It means that the Treasury is going to use the $450 billion that is obliquely allocated in the emergency bill, to create a Special Purpose Vehicle (SPV)–which is a sleazy, off-balance sheet operation that is used to conceal underhanded bookkeeping, that will leverage up by 10x (which means that the Fed will use the $450 billion to borrow tens times more than the original amount or $4.5 trillion) that will be stealthily used to bail out underwater corporations, financial institutions and, yes, banks. (Note–The fairy-tale about “well capitalized banks” is pure bunkum. These guys have serious exposure through “sponsored repo” which is lending to hedge funds via the repo market.) The Fed has already created one SPV for the Commercial Paper market under the Treasury’s Exchange Stabilization Fund (ESF) which is supposed to be used to mitigate volatility in global currency markets, not for bailing out failing corporations. It’s a complete misuse of funds. Unfortunately, targeted suspension of the Sunshine Act will prevent the public from figuring out who is getting money in what amount and for what purpose. This whole scam has been carefully worked out right down to legal provisions preventing transparency.

By the way, Mnuchin’s personal bio is worth reviewing. According to Senator Ron Wyden:
“Mr. Mnuchin’s career began in trading the financial products that brought on the housing crash and the Great Recession. After nearly two decades at Goldman Sachs, he left in 2002 and joined a hedge fund….

“In early 2009, Mr. Mnuchin led a group of investors that purchased a bank called IndyMac, renaming it OneWest. OneWest was truly unique. While Mr. Mnuchin was CEO, the bank proved it could put more vulnerable people on the street faster than just about anybody else around.
“While he was CEO, a OneWest vice president admitted in a court proceeding to ‘robo-signing’ upward of 750 foreclosure documents a week…between 2009 and 2014, a period during which the bank foreclosed on more than 35,000 homes. ‘Widow foreclosures’ on reverse mortgages – OneWest did more of those than anybody else. The bank defends its record on loan modifications, but it was found guilty of an illegal practice known as ‘dual tracking.’ One bank department tells homeowners to stop making payments so they can pursue modification, while another department presses on and hurtles them into foreclosure anyway.” (“Stimulus Bill: The Fed and Treasury’s Slush Fund Is Actually $4 Trillion”, Wall Street on Parade)

Does that sound like someone who can be trusted in the distribution of $4.5 trillion in government funds?
The media is not even trying to hide the sordid details of what’s going on behind the scenes. Take a look at this excerpt from an article at Bloomberg:
“The Federal Reserve could now have as much as $4.5 trillion to keep credit flowing and make direct loans to U.S. businesses through the massive coronavirus stimulus bill being considered by U.S. lawmakers. The bipartisan agreement, which still needs to be passed by the Senate and House and signed into law by President Donald Trump, will include $454 billion in funds for the Treasury to backstop emergency actions by the Fed to support the U.S. economy, Senator Patrick Toomey said on Wednesday.

The central bank will work with the U.S. Treasury to use that money as a backstop against credit risk as it supports markets for corporate and short-term state and local debt, while also loaning directly to large and medium-sized businesses….

“It is a very, very big thing; it is unprecedented,” the Pennsylvania Republican told reporters Wednesday on a conference call, adding it was an opportunity to lever up “the unlimited balance sheet of the Fed.”

Toomey’s comments suggest Fed facilities could be expanded with the new funds, in effect doubling the Fed’s current $4.7 trillion balance sheet if necessary. On Sunday, Treasury Secretary Steven Mnuchin said the bill would provide up to $4 trillion in liquidity through broad-based lending programs operated by the Fed.” (“Fed’s Anti-Virus Lending Firepower Could Reach $4.5 Trillion”, Bloomberg)

Toomey is an idiot! Can’t he see what’s going on? Why does he say: “This is a very, very big thing.”… “an opportunity to lever up “the unlimited balance sheet of the Fed”??? Doesn’t he know that the US Treasury has now accepted full liability and credit risk for the Fed’s emergency bailout operations. Does he like the idea that the American people will now be on the hook for the CEOs who blew up their own companies to fatten their own bank accounts?? That’s what this means. Readers should parse these articles very carefully, word by word, phrase by phrase. The ugly truth is spelled out in black and white. Here’s the key phrase in the Times article:
“Because the Fed cannot take on substantial credit risk itself, the Treasury Department backs its emergency lending.”

And here’s the key phrase in the Bloomberg article: “The central bank will work with the U.S. Treasury to use that money as a backstop against credit risk as it supports markets for corporate and short-term state and local debt, while also loaning directly to large and medium-sized businesses.”

There it is: Credit risk, credit risk, credit risk. Who assumes the credit risk for this $4.5 trillion dollar giveaway??

The American taxpayer. Look: The Fed has always had the ability to print as much money as it chooses. (Remember: “Unlimited QE”??) So why did the Fed need to link-up with the Treasury for this operation?

Because the Fed is unwilling to accept the credit risk. Who will ultimately be accountable for all the bad bets and worthless bonds that are being downgraded as we speak? Who is going to mop up the trillions in red ink created by crooked, scheming, cutthroat corporations (and their financial counter-party accomplices) who plundered their companies for the sole objective of enriching themselves and their shareholders?

Who?
The US Treasury backed by the American taxpayer.

This is really the endgame. Wall Street has subsumed the US Treasury and turned it into a massively leveraged hedge fund that is controlled by an unscrupulous charlatan who made his bones evicting families from their homes during the worse economic slump since the Great Depression.

We’re truly fu**ed.
NOTE– As this was being written, stocks were shooting higher for a third consecutive day due, in large part, to the easing of credit spreads in the corporate bond market. According to Matt Maley, chief market strategist at Miller Tabak, “They’ve been able to come into the credit markets and stabilize that area; we see credit spreads starting to tighten up a little bit…..The fact that they’re starting to stabilize gives people the kind of confidence they need to be able to dip their toes back into the market at a time when we absolutely need it.”

In other words, the bailout appears to be working for the investor class. Yipee.

Good Morning Mr. Bruce,

Since last night, I put 26 orders, Gold, US30 & S&P500.
So far, 19 orders successfully done with profit of $9500,

07 orders, still waiting to close when market is in my favour,
03 Gold, 02 US30 & S&P respectively open.

I could not have done this without your teaching/formula.

http://www.whatdoesitmean.com/index3169.htm

March 28, 2020
US Military Command Rushes Into Mountain Bunkers After Daughter Of Murdered President John F. Kennedy Meets With Trump

By: Sorcha Faal, and as reported to her Western Subscribers

An at first just merely alarming new Ministry of Defense (MoD) report circulating in the Kremlin today noting its plans to speed up testing of the Zircon hypersonic missile and announcing that upgrades to the facilities for the serial production of Sarmat multiple-warhead nuclear armed ICBM’s have been completed, turns mind-blowingly surreal when one reads a referenced appendix attached to it prepared by the beyond highly-secretive 8th Directorate of the General Staff—an appendix that begins by revealing that the US Northern Command has dispersed essential command and control teams to multiple hardened locations, including the famous Cheyenne Mountain bunker complex in Colorado, as well as another unspecified site, and is keeping them in isolation—a war move coming at the same time President Donald Trump ordered the immediate call-up of 1 million ready reserve combat troops—all coming within 48-hours of Trump holding a secret meeting at the White House with Caroline Kennedy—the last surviving child of the murdered 35th President of the United States John F. Kennedy—who was publically executed by having his head blown off after he was abandoned by his Secret Service bodyguards on 22 November 1963 in Dallas-Texas—and was a meeting made especially noteworthy as just a few weeks prior, Caroline Kennedy resigned unexpectedly from her board position at Harvard University’s Kennedy School that was named after her executed father—and following her mysterious meeting with Trump, saw a number of mysterious events occurring to include—the wife of Trump-loyalist rock music icon Ted Nugent suddenly releasing a never-before-seen photograph of them with Caroline Kennedy’s “believed to be murdered so Hillary Clinton could take the US Senate seat he planned to run for” brother John F. Kennedy Jr.—the grandchildren of executed President Kennedy then posting a video that sees them joyfully singing the warning words “It's goin down...I'm yellin timber....You better move...”—and most astonishingly, then saw the most important figure in pop-culture history, Bob Dylan, ending a near 17-year period of isolation to release his over 16-minute song about the execution of President Kennedy this master songwriter for the ages titled “Murder Most Foul”. [Note: Some words and/or phrases appearing in quotes in this report are English language approximations of Russian words/phrases having no exact counterpart.]

http://www.whatdoesitmean.com/fol21.jpg

According to this report, little known to the American people as to why the 2016 US Presidential Election was the most bitterly fought over one in nearly their nation’s entire history, was due to a US federal law called the President John F. Kennedy Assassination Records Collection Act of 1992—a law arising from the Assassination Records Review Board, one of whose most damning findings concluded that “the brain photographs in the Kennedy records are not of Kennedy's brain and show much less damage than Kennedy sustained”—but whose most terrifying findings and evidence were ordered by this law to be kept at the highest level of secrecy until 27 October 2017—thus meaning that whomever became the United States president in 2016, would be the first American leader in history to know everything about the execution murder of President Kennedy.

When 27 October 2017 arrived, however, this report notes, President Trump was already under the most withering attack ever witnessed on an American leader in modern times, which saw him breaking his promise to release all of the information to the public about President Kennedy’s assassination execution—but whose most feared secrets he kept to himself, provided him the masterplan to take down and destroy the Deep State forces that not only executed Kennedy, but were planning Trump’s demise, too—but to successfully carry out, would see Trump having to completely destroy the existing world order—that not only is Trump doing, it is why former globalist-socialist British Prime Minister Gordon Brown is now urgently calling for a new global government to be immediately created and established to rule over the world.

http://www.whatdoesitmean.com/fol22.jpg

While waging the greatest war ever witnessed in modern times to destroy the existing world order, this report details, President Trump is using the current global coronavirus pandemic as his cover to carry out his masterplan—as the indisputable facts prove this pandemic is nothing but a “red herring” device (something that distracts attention from the real issue) meant to distract the public’s attention away from what is truly occurring—facts which include the truth that the total number of coronavirus deaths to date in the world are still less than the total number of flu deaths in the United States this flu season—the Imperial Collage expert who predicted 500,000 deaths in UK admitting he was wildly wrong, and his expecting this pandemic to peak in two weeks with less than 20,000 deaths—the top virus expert for the CDC concurring and saying the pandemic will peak in another two to three weeks—top White House Coronavirus Task Force scientist Dr. Deborah Birx further concurring and saying the initial pandemic death toll claims “Were Wildly Exaggerated”—all joined by lead White House Coronavirus Task Force scientist Dr. Anthony Fauci admitting the truth in his research article published this week in the New England Journal of Medicine wherein he conceded that the coronavirus mortality rate may be much closer to a very bad flu.

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As of 28 March 2020 at 12:34 hrs GMT +3: United States total of 104,837 coronavirus ill patients and around 1,500+ coronavirus deaths still come nowhere close to their nation’s 29 million flu infected patients and 16,000 flu deaths from a month and a half ago.

While effectively using the coronavirus pandemic as his “red herring” distraction device, this report further notes, to understand what President Trump is really doing one needs only to fully understand why top Wall Street Journal journalist Jacky Wong posted about 48-hours ago his warning Tweet saying “World War 3 during a pandemic wasn’t something I expected”—a warning issued at the same time Trump ordered the US Navy to sail a combat ready warship through the Taiwan Strait in defiance of Communist China—and was a wartime order issued by Trump immediately after he signed into law Thursday night, 26 March, the TAIPEI Act—which pledges full economic and military American support to Taiwan and vows to punish countries that side with Communist China on this issue.


While directly and deliberately targeting Communist China with this wartime move in support of Taiwan, this report continues, President Trump then made another wartime move with his order to refineries in both the United States and Europe to begin refusing all deliveries of oil from Saudi Arabia—which led to the dire warning being issued that declining oil revenues may lead to an “unthinkable balance-of-payments crisis” for Saudi Arabia and end that country’s decades long policy of pegging its currency, the Riyal, to the US Dollar—otherwise known as the Petrodollar System whose Petrodollar Warfare global chaos Trump is now attempting to destroy at all costs.

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The global and domestic environments any American leader would need before even attempting to take on and destroy the Petrodollar System, this report explains, are as complicated, interconnected and so farfetched to believe in, no one in the world ever seriously considered such a thing a possibility—as first the United States would have to overcome a globalist-socialist onslaught of environmental laws, rules and unending lawsuits to become the world’s largest oil producer and no longer needing Middle East oil—next the United States would have to achieve and maintain for at least two years the full employment of all of its citizens in order for them to provide for themselves an economic buffer—then the United States would to have interest rates at 0% or below, while at the same time maintaining an inflation rate of less than 3% to keep their currency from collapsing—while the world itself would need to have so much excess oil there’s no place left to store it—when the final attack is made against the Petrodollar System, it would have to see an entire world bunkered down in wartime mode—and most critically of all, would have to be led by an American leader having no fear of pumping trillions-of-dollars into the American economy to keep it afloat while the war raged—who in its aftermath, also, would have to back a new gold standard for America.

But like the rarest of celestial alignments that occur once in a lifetime, this report continues, President Trump now sees himself against all odds presiding over a United States that’s the largest oil producer in the world—achieved and maintained full employment for his citizens for over two years—has a national interest rate of 0.01% and an inflation rate of less than 3%—today sees the world on the brink of running out of places to put oil—today sees the entire world bunkered down in wartime mode because of the coronavirus pandemic—yesterday saw Trump signing a rescue package whose total worth of $6 trillion will be pumped into the US economy to keep it afloat—and is the same Trump who’s moving to reinstate his nation’s gold standard.

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Virtually unknown to the American people currently living through the most existential period in their lifetimes, this report concludes, is that the most pivotal date in their nation’s history that future historians will write about is 17 February 2016—and was when then candidate for president Donald Trump vowed to all of his country’s citizens that if elected: “you will find out who really knocked down the World Trade Center”—a date on which the price for an ounce of gold was around $1,100, versus the $1,627 an ounce of gold costs today—an over 37% increase in the price per ounce of gold benefiting both Russia and China as both knew this currency war was coming—and along with every other sound mind in the world, knew that Trump’s vow about 9/11 was an all-out declaration of war against his nation’s globalist-socialist Deep State—specifically the US intelligence and military communities, who for decades had used the Petrodollar System to wage their global hegemonic wars—and would destroy without mercy, like President Kennedy, all who opposed them, as well as think nothing about killing thousands of innocent American civilians to start another war, like on 9/11—a ruthless warmongering cabal President Dwight Eisenhower warned Kennedy and the American people about on his last day in office when we famously declared: “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex....The potential for the disastrous rise of misplaced power exists and will persist....We must never let the weight of this combination endanger our liberties or democratic processes”—and when first meeting the leaders of in the Pentagon after taking office, and where they believed they would overpower him, saw President Trump “blasting them to their faces while calling them a bunch of losers, dopes and babies”—and as one would expect from a fearless wartime leader who knows his enemies better than they know themselves, and is ruthless enough to win any fight of revenge for his nation and its peoples he finds himself in.

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March 28, 2020 EU and US all rights reserved. Permission to use this report in its entirety is granted under the condition it is linked to its original source at WhatDoesItMean.Com. Freebase content licensed under CC-BY and GFDL.

[Note: Many governments and their intelligence services actively campaign against the information found in these reports so as not to alarm their citizens about the many catastrophic Earth changes and events to come, a stance that the Sisters of Sorcha Faal strongly disagree with in believing that it is every human being’s right to know the truth. Due to our mission’s conflicts with that of those governments, the responses of their ‘agents’ has been a longstanding misinformation/misdirection campaign designed to discredit us, and others like us, that is exampled in numerous places, including HERE.]

[Note: The WhatDoesItMean.com website was created for and donated to the Sisters of Sorcha Faal in 2003 by a small group of American computer experts led by the late global technology guru Wayne Green(1922-2013) to counter the propaganda being used by the West to promote their illegal 2003 invasion of Iraq.]
[Note: The word Kremlin (fortress inside a city) as used in this report refers to Russian citadels, including in Moscow, having cathedrals wherein female Schema monks (Orthodox nuns) reside, many of whom are devoted to the mission of the Sisters of Sorcha Faal.]

America Endures First In World History “Let Stupid People Die” Pandemic

Nothing Will Ever Be The Same After New Age Of Heroes Arises With Coronavirus

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https://www.dollarcollapse.com/kunst...world-reality/


James Howard Kunstler: When The Financial World Broke With Reality

BY JOHN RUBINO ◆ MARCH 28, 2020

In the sound money world there are a lot of journalists, a few serious analysts, and a handful of effective polemicists.
But James Howard Kunstler is an artist, whose work frequently rises to the level of literature. His latest illustrates the point:

Forced Liquidation

Historians of the future, pan-roasting fresh-caught June bugs over their campfires, may wonder when, exactly, was the moment when the financial world broke with reality. Was it when Nixon slammed the “gold window” shut? When “maestro” Alan Greenspan first bamboozled a Senate finance committee? When Pets.com face-planted 268 days after its IPO? When Ben Bernanke declared the housing bubble “contained?”


If our reality is a world of human activity, then finance is now completely divorced from it for the obvious reason that, for now, there is no human activity. Everyone, except the doctors and nurses, and some government officials, is locked down. So, the only other thing actually still out there spinning its wheels is finance and, to those of us watching from solitary confinement, it is looking more and more like an IMAX-scale hallucination with Dolby sound.


How many mortals can even pretend to understand the transactions now taking place among treasury and banking officials? On their own terms – TALFs, Special Purpose Vehicles, Commercial Paper Funding Facilities, Repo Rescue Operations, “Helicopter Money” – stand as increasingly empty jargon phrases that signify increasingly futile efforts to paper over the essence of the situation: the world is bankrupt. It’s that simple.


The world is locked down and in hock up to its eyeballs. It faces what the bankers euphemistically call, ahem, a “work-out,” which is to say, a restructuring. The folks in charge are resisting that work-out with all their might, because it will change many of the conditions of everyday life (especially theirs), but it is coming anyway.

When debt can’t be paid back, money vanishes. Money isn’t capital, but it represents capital when it is functioning. When it isn’t functioning, it stops being money.

Now the whole world realizes that the debt can’t be paid back, will never be paid back… and that’s the jig that’s up.


The Federal Reserve’s balance sheet is the black hole in the financial universe where money goes to die. Money is rushing in there at a fantastic rate these days, and the Fed is trying to spew out new money at an equal rate to replace it – raising the question: is it even money anymore, or just a figment in the larger hallucination?


Kind of seems that way, a little bit. They brought out their biggest money-launching bazookas only a few days ago, and it may only be few days more before that gigantic salvo proves inadequate. What then?


Perhaps the key is how long the ordinary folk agree to their orderly confinement, even in the face of the corona virus. That moment may be a bit further out, with the melodrama mounting especially in New York City right now, numbers of sick people going all hockey-stick, and frightful scenes in the hospitals. But then, whether it’s a week from now, or Easter Sunday, or sometime after that, what will the ordinary folk do when they decide en masse to de-confine and come roaring out in the streets?


I must imagine that one vignette will feature a mob of inflamed formerly middle-class Long Islanders swarming into the Hamptons with blood in their eyes for the hedge funders cringing in their majestic show-places, who will discover with maximum chagrin that privet hedge is no hedge at all against the wrath of the plebes.

There has never been a bigger swindle in history than the aggregate shenanigans on Wall Street lo these years of the new millennium, and we all know it, even if it’s hard to explain just how they did it. The money boyz should be taking a haircut-and-a-half now instead of wailing for bail-outs, but such is the perversity of human greed that they made one last desperate attempt to nail down their fortunes when everybody else was losing…everything.


You understand that banking and finance was headed firmly south long before corona virus stole onto the scene. The tremors started back in September with the Fed jamming untold trillions into the black hole that had opened in overnight lending between banks. That was an infection, too, and boy did it spread — as fast as corona virus! This is indeed a most unfortunate convergence of events, but it should tell you that the banking and finance system, and the global economic arrangements that evolved with it, had already passed their event horizon. History had punched our ticket and was embarking us on a journey whether we were ready or not.


Is it a comfort to know that Joe Biden waits patiently on the sidelines to wave his aviator glasses and make everything normal again? I didn’t think so. Mr. Trump, for all the awe of his office, is not much better positioned to turn about the ship we’re now sailing on. Rough seas ahead, in uncharted waters, as we seek landfall in the next new world.

https://www.armstrongeconomics.com/w...m_campaign=RSS

The Rise of Civil Unrest & the Dawn of Authoritarianism



Blog/Civil Unrest

Posted Mar 28, 2020 by Martin Armstrong

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There are reports of riots beginning in China. In Thailand, one of the most peaceful communities, there was an armed robbery of a 7/11. You cannot shut down the world economy like this. People will begin to riot after 10 days and we will see a sharp rise in property crimes. People are being deprived of employment and no level of government hand-outs will suffice.


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The English philosopher Thomas Hobbes (1588-1679) is best known for his political thought, where he argued that society has a drive towards chaos and destruction.

His vision of the world in his Leviathan (1651) was strikingly original and it is perhaps even very relevant to contemporary politics. Hobbes’ main concern was the problem of social and political order. This was the time of the English Civil War which concluded with beheading the King. His opponent was Oliver Cromwell which promptly replaced the king’s portrait on the coins with his own. He called himself – Lord Protector while pretending he was not a king.


Hobbes argued that human beings can live together in peace and avoid the danger and fear of civil conflict. He argued that we should give our obedience to an unaccountable sovereign (a person or group empowered to decide every social and political issue). Otherwise what awaits us is a “state of nature” that closely resembles civil war – a situation of universal insecurity, where all have reason to fear violent death and where rewarding human cooperation is all but impossible.


Those in power cannot contemplate a world where they have lost all power. Yet they refuse to reform and honor the Social Contract of which Hobbes saw as their part of the bargain.

The condition in which people give up some individual liberty in exchange for some common security is the Social Contract. Hobbes defines a contract as “the mutual transferring of right.” In the state of nature, everyone has the right to everything – there are no limits to the right of natural liberty.


The false promises of the Marxist socialist era where they merely bribed people for votes but never actually created a system that would deliver on those promises are now coming undone. They have adopted the Modern Monetary Theory behind the curtain and seek to just print money to cover their promises but at the same time, they seek to control society to prevent civil unrest.

I fear for the future for this is unraveling with our War Model and the civil unrest is rising into the end of this year rather intensely on a global scale.

Categories: Civil Unrest

https://www.theburningplatform.com/2...n/#more-215165

The Fed Can’t Fix What’s Broken
Authored by Lance Roberts via RealInvestmentAdvice.com,


The Federal Reserve is poised to spray trillions of dollars into the U.S. economy once a massive aid package to fight the coronavirus and its aftershocks is signed into law. These actions are unprecedented, going beyond anything it did during the 2008 financial crisis in a sign of the extraordinary challenge facing the nation.” –

Bloomberg

Currently, the Federal Reserve is in a fight to offset an economic shock bigger than the financial crisis, and they are engaging every possible monetary tool within their arsenal to achieve that goal. The Fed is no longer just a “last resort” for the financial institutions, but now are the lender for the broader economy.

There is just one problem.

The Fed continues to try and stave off an event that is a necessary part of the economic cycle, a debt revulsion.

John Maynard Keynes contended that:
“A general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers.”

In other words, when there is a lack of demand from consumers due to high unemployment, then the contraction in demand would force producers to take defensive actions to reduce output. Such a confluence of actions would lead to a recession.

On Thursday, initial jobless claims jumped by 3.3 million. This was the single largest jump in claims ever on record. The chart below shows the 4-week average to give a better scale.

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This number will be MUCH worse next week as many individuals are slow to file claims, don’t know how, and states are slow to report them.

The importance is that unemployment rates in the U.S. are about to spike to levels not seen since the “Great Depression.” Based on the number of claims being filed, we can estimate that unemployment will jump to 20%, or more, over the next quarter as economic growth slides 8%, or more. (I am probably overly optimistic.)

https://zh-prod-1cc738ca-7d3b-4a72-b...GDP-032620.png

More importantly, since the economy is 70% driven by consumption, we can approximate the loss in full-time employment by the surge in claims. (As consumption slows, and the recession takes hold, more full-time employees will be terminated.)

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This erosion will lead to a sharp deceleration in economic confidence. Confidence is the primary factor of consumptive behaviors, which is why the Federal Reserve acted so quickly to inject liquidity into the financial markets. While the Fed’s actions may prop up financial markets in the short-term, it does little to affect the most significant factor weighing on consumers – their job.


Another way to analyze confidence data is to look at the consumer expectations index minus the current situation index in the consumer confidence report.

This measure also says a recession is here. The differential between expectations and the current situation, as you can see below, is worse than the last cycle, and only slightly higher than prior to the “dot.com” crash. Recessions start after this indicator bottoms, which has already occurred and will show up when the current data is released.

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Importantly, bear markets end when the negative deviation reverses back to positive.
While the virus was “the catalyst,” we have discussed previously that a reversion in employment, and a recessionary onset, was inevitable. To wit:
“Notice that CEO confidence leads consumer confidence by a wide margin. This lures bullish investors, and the media, into believing that CEO’s really don’t know what they are doing. Unfortunately, consumer confidence tends to crash as it catches up with what CEO’s were already telling them.


What were CEO’s telling consumers that crushed their confidence?


“I’m sorry, we think you are really great, but I have to let you go.”

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Confidence was high because employment was high, and consumers operate in a microcosm of their own environment.

“[Who is a better measure of economic strength?] Is it the consumer cranking out work hours, raising a family, and trying to make ends meet? Or the CEO of a company who is watching sales, prices, managing inventory, dealing with collections, paying bills, and managing changes to the economic landscape on a daily basis?

A quick look at history shows this level of disparity (between consumer and CEO confidence) is not unusual. It happens every time prior to the onset of a recession.

Far From Over

Why is this important?

Hiring, training, and building a workforce is costly. Employment is the single largest expense of any business, but a strong base of employees is essential for the prosperity of a business. Employers do not like terminating employment as it is expensive to hire back and train new employees, and there is a loss of productivity during that process.

Therefore, CEOs tend to hang onto employees for as long as possible until bottom-line profitability demands “leaning out the herd.”

The same process is true coming OUT of a recession. Companies are “lean and mean” and are uncertain about the actual strength of the recovery. Again, given the cost to hire and train employees, they tend to wait as long as possible to be certain of justifying the expense.

Simply, employers are slow to hire and slow to fire.
While there is much hope that the current “economic shutdown” will end quickly, we are still very early in the infection cycle relative to other countries. Importantly, we are substantially larger than most, and on a GDP basis, the damage will be worse.

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What the cycle tells us is that jobless claims, unemployment, and economic growth are going to worsen materially over the next couple of quarters.

“But Lance, once the virus is over everything will bounce back.”

Maybe not.


The problem with the current economic backdrop, and mounting job losses, is the vast majority of American’s were woefully unprepared for any type of disruption to their income going into recession. As discussed previously:
“The ‘gap’ between the ‘standard of living’ and real disposable incomes is shown below. Beginning in 1990, incomes alone were no longer able to meet the standard of living so consumers turned to debt to fill the ‘gap.’ However, following the ‘financial crisis,’ even the combined levels of income and debt no longer fill the gap.

Currently, there is almost a $2654 annual deficit that cannot be filled.”

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As job losses mount, a virtual spiral in the economy begins as reductions in spending put further pressures on corporate profitability. Lower profits lead to more unemployment, and lower asset prices until the cycle is complete.

While the virus may end, the disruption to the economy will last much longer, and be much deeper, than analysts currently expect. Moreover, where the economy is going to be hit the hardest, is a place where Federal Reserve actions have the least ability to help – the private sector.


Currently, businesses with fewer than 500-employees comprise almost 60% of all employment. 70% of employment is centered around businesses with 1000-employees, or less. Most of the businesses are not publicly traded, don’t have access to Wall Street, or Federal Reserve’s bailouts.

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The problem with the Government’s $2 Trillion fiscal stimulus bill is that while it provides one-time payments to taxpayers, which will do little to extinguish the financial hardships and debt defaults they will face.

Most importantly, as shown below, the majority of businesses will run out of money long before SBA loans, or financial assistance, can be provided.

This will lead to higher, and a longer-duration of, unemployment.

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One-Percenter
What does this all mean going forward?

The wealth gap is going to explode, demands for government assistance will skyrocket, and revenues coming into the government will plunge as trillions in debt issuance must be absorbed by the Federal Reserve.

While the top one-percent of the population will exit the recession relatively unscathed, again, it isn’t the one-percent I am talking about.

It’s economic growth.
As discussed previously, there is a high correlation between debts, deficits, and economic prosperity. To wit:
“The relevance of debt growth versus economic growth is all too evident as shown below. Since 1980, the overall increase in debt has surged to levels that currently usurp the entirety of economic growth. With economic growth rates now at the lowest levels on record, the growth in debt continues to divert more tax dollars away from productive investments into the service of debt and social welfare.”

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However, simply looking at Federal debt levels is misleading.

It is the total debt that weighs on the economy.

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It now requires nearly $3.00 of debt to create $1 of economic growth. This will rise to more than $5.00 by the end of 2020 as debt surges to offset the collapse in economic growth. Another way to view the impact of debt on the economy is to look at what “debt-free” economic growth would be.


In other words, without debt, there has been no organic economic growth.

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Notice that for the 30-year period from 1952 to 1982, the economic surplus fostered a rising economic growth rate, which averaged roughly 8% during that period.

Since then, the economic deficit has only continued to erode economic prosperity.

Given the massive surge in the deficit that will come over the next year, economic growth will begin to run a long-term average of just one-percent.

This is going to make it even more difficult for the vast majority of American’s to achieve sufficient levels of prosperity to foster strong growth. (I have estimated the growth of Federal debt, and deficits, through 2021)

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The Debt End Game
The massive indulgence in debt has simply created a “credit-induced boom” which has now reached its inevitable conclusion. While the Federal Reserve believed that creating a “wealth effect” by suppressing interest rates to allow cheaper debt creation would repair the economic ills of the “Great Recession,” it only succeeded in creating an even bigger “debt bubble” a decade later.

“This unsustainable credit-sourced boom led to artificially stimulated borrowing, which pushed money into diminishing investment opportunities and widespread mal-investments. In 2007, we clearly saw it play out “real-time” in everything from sub-prime mortgages to derivative instruments, which were only for the purpose of milking the system of every potential penny regardless of the apparent underlying risk.”

In 2019, we saw it again in accelerated stock buybacks, low-quality debt issuance, debt-funded dividends, and speculative investments.

The debt bubble has now burst.
Here is the important point I made previously:
“When credit creation can no longer be sustained, the markets must clear the excesses before the next cycle can begin. It is only then, and must be allowed to happen, can resources be reallocated back towards more efficient uses. This is why all the efforts of Keynesian policies to stimulate growth in the economy have ultimately failed. Those fiscal and monetary policies, from TARP and QE, to tax cuts, only delay the clearing process. Ultimately, that delay only deepens the process when it begins.


The biggest risk in the coming recession is the potential depth of that clearing process.”

This is why the Federal Reserve is throwing the “kitchen sink” at the credit markets to try and forestall the clearing process.

If they are unsuccessful, which is a very real possibility, the U.S. will enter into a “Great Depression” rather than just a “severe recession,” as the system clears trillions in debt.


As I warned previously:
“While we do have the ability to choose our future path, taking action today would require more economic pain and sacrifice than elected politicians are willing to inflict upon their constituents. This is why throughout the entirety of history, every empire collapsed eventually collapsed under the weight of its debt.


Eventually, the opportunity to make tough choices for future prosperity will result in those choices being forced upon us.”

We will find out in a few months just how bad things will be.

But I am sure of one thing.

The Fed can’t fix what’s broken.
While the financial media is salivating over the recent bounce off the lows, here is something to think about.

1. Bull markets END when everything is as “good as it can get.”
2. Bear markets END when things simply can’t “get any worse.”

We aren’t there yet.