*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: News from the Eurozone, specifically Greece, is almost overwhelmingly negative. Anticipation of short covering on any good news out of the Eurozone. Conversely, there is upward pressure on the dollar that may seek short term relief via central bank intervention.
Result of Call for June 10, 2011:Dow Jones Industrial Average to rise. Was 11,952, Currently 11,897. Bad Call.
Calls to Date: Good Calls: 28, Bad Calls: 22, Batting .560
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale: Banks, of which Bank of America, being the largest consumer bank, is an indicator, had some very bad press today as far at their prospects. While we believe that in the long run these stocks are nearly worthless, B of A is likely to rise in the face of such negative sentiment.
Result of Call for June 1, 2011:Greek 5-YR Sovereign Credit Default Swap to fall. Was 1608.50, Currently 1390.97. Good Call.
Calls to Date: Good Calls: 25, Bad Calls: 18, Batting .581
Today’s Call: Greek 5-YR Sovereign Credit Default Swap to fall. Currently 1608.50.
Rationale – Announcement of new bailout fund for Greece to occur shortly. Greece and any other sovereign nation will be bailed out in various fashions in a frantic attempt to avoid a default. A sovereign default would mean the beginning of the end of the currency regime and the regime will do everything in its power, no matter how illogical, to avoid it.
Result of Call for May 26, 2011: Dow Jones Industrial Average to fall. Was 12,402, Currently 12,290. Good Call.
Calls to Date: Good Calls: 23, Bad Calls: 17, Batting .575
Today the focus of the financial world is on events around the Mediterranean where the Greek and increasingly the Spanish people again find themselves at odds with their respective governments and their IMF / ECB / German debt collectors.
How did they get there? The Greeks and arguably the Spanish have been living in the social equivalent of a Club Med ever since they joined the Euro. The initial sting of higher prices was offset for most by lower borrowing costs. Life was good. The advent of the Euro along with a boom in tourism began to feed a property boom in Spain and a government spending boom in Greece.
Alas, as an economy slows, the government is usually the last to know.
Like the father whose family takes a vacation to Club Med, he is content to let the family splurge with little worry as to how he will cover the bill. “Just throw it on the credit card, we’ll take care of it later” becomes the mantra.
Unfortunately for the father (who represents the Greek, Spanish, and arguably the US governments in our parable), his bank decides to cut his credit line just before the vacation is over. The bill comes due and the man frantically negotiates with his bank (the ECB, IMF, and arguably the US FED) to extend his credit line enough to cover the bill.
Club Med – Paradise Lost!
To make matters worse, upon his return the man finds that the income from his job (the government’s tax receipts in our parable) has been cut due to “the economy*.” He now has no realistic prospect of repaying his extended credit line and instead must now consider a painful reduction in the family’s standard of living.
Naturally the family, who has developed some expensive habits while away at Club Med, rebels. The father is now in a no win situation. On the surface, he appears to have a choice between satisfying his family at the expense of his creditors or vice versa.
There is, of course, an easy way out. The man who is in this hopeless situation can declare bankruptcy. Problem solved, right? Not so fast. You see, because of “the economy*,” the bank cannot release the man from his debts and have enough money to make good on its own obligations.
At this point, the Central Banks of the world (which are represented by the bank in our parable) lack not only the credibility but also the practical tools to perform their make believe function as protectors of the value of their respective currencies.
Today we read a piece by Michael Pento of Euro Pacific Capital (run by Peter Schiff) which seems to give logical credence to what we have long suspected to be the case:
“In the end, any meaningful attempt to withdraw liquidity will not only bankrupt the institution (The FED) but also zero out their remaining credibility. That’s why they’ll never even make an honest attempt.”
The FED is helpless to remove the liquidity it has injected and will soon have to decide which of its member banks to sacrifice if the dollar is to continue as a functioning currency. Our money is on the dollar and all who rely on it as a store of value to be the sacrificial lambs.
Back to our parable. Both the man and the bank will continue to pretend to negotiate with each other, giving the illusion that what is now their mutual problem will supernaturally disappear. The family will continue to pretend to debate which expenditures to cut back on as if it will make a difference.
Unfortunately, the likelihood of the problem disappearing is equivalent to the likelihood of the family being able to go back in time to cancel their trip to Club Med prior to departure. Such is the nature of debt.
So the bank, the father, and the family find themselves clinging to a myth as they helplessly hurtle towards the unknown.
*Definition of “the economy”, circa 2011 – A term used to describe the large scale collapse of Central Banking and the Socialist / Communist economic model that it has created over the past 100 years. Generally used by politicians and others in authority to “explain” why they cannot pay their obligations. This explanation is presented to the masses as a failure of capitalism when quite the opposite is true. Thus, this simple two word phrase is used as an excuse to further the Socialist / Communist agenda and that of the police state that is forming all around the world.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
We’ve said it before, things are beginning to happen at a rapid pace and the authorities are absolutely and completely helpless to do anything about it. Not for lack of money, have you, for they are second in line behind the banks to pick at the money tree. No, the authorities lack the one thing that is indispensable to getting things done. Credibility.
Have things improved for you, fellow taxpayer? Unless you are a banker, lobbyist, are a contractor who works for a banker or lobbyist, the answer is probably no.
And we haven’t even begun to talk “austerity” on US shores.
But first, we are obligated to take a peek at what the G-8 is doing. We suspect we know but it is important to confirm ones suspicions.
From the Associated Press:
DEAUVILLE, France (AP) — Rich countries and international lenders are aiming to provide $40 billion in funding for Arab nations trying to establish true democracies, officials said at a Group of Eight summit Friday.
Officials didn’t fully detail the sources of the money, or how it would be used, but the thrust was clearly to underpin democracy in Egypt and Tunisia — where huge public uprisings ousted autocratic regimes this year — and put pressure on repressive rulers in Syria and Libya.
We suspected more aid to someone but this appears even more misguided than we thought. The first line of the second paragraph is especially laughable but you can see where this is going. We speculated Wednesday about the events in Palestine getting ready to take center stage, largely as a distraction to the “utter and complete collapse” of the world’s current financial system.
The G-8 is now throwing what is left of their credibility into extending their influence in the Middle East. They have Iraq, Afghanistan, and now Egypt and Tunisia as footholds. Will they be strong enough to hang on to this newfound influence? Only time will tell if the new regimes can be bribed as easily as the old ones.
The credibility of the Western Governments and their worn out welfare state economic models is nearly spent. In Greece, the IMF / Eurozone bailout participants are finding out that the Greek politicians don’t have the collective stomach to play the repo man on their countrymen’s future.
It appears that the government is refusing more austerity measures and is rethinking whether or not this whole Euro adventure is such a good idea. Failure to agree now places the spotlight on the IMF / Eurozone plunge protection team. Will they have the stomach to let Greece default?
The gauntlet has been thrown down, and what happens to Greece will set the tone for how the inevitable sovereign defaults of the Western Governments are likely to play out. Are the Greeks the Lehman Brothers of Sovereigns?
Back in Europe, a sequel to the Greek experience is now playing itself out across the Mediterranean Sea on the Iberian Peninsula. The youth in Spain are finally arising as they clearly see that the politicians have shamelessly “handed their future” to the nation’s banks.
With protests in nearly every major city, their resolve grows with every passing day. In Barcelona, one day before Barça plays for the Champions Cup against Manchester, the authorities attempted to clear Plaça Catalunya to clean it in anticipation of the celebrations that would surely take place there when Barça, led by the great Liionel Messi, wins the cup.
With over 100 persons injured between protestors and police officers, they will now have to clean up blood in the square. The Spanish authorities, not unlike their western peers, just don’t get it. The old way of doing things is over, fini. The youth are taking matters into their own hands. With 45% of the Spanish youth unemployed, their sheer numbers, if they stay at it, will simply overwhelm the authorities.
A final piece of news to share with you here at The Mint, the US Housing Market has finally capitulated. In other words, it is now safe to buy a house. The hope that the US Government and Central Bank could somehow revive this market has left town on the same train as the US Government’s credibility.
The US Government lost its credibility most recently as it continues to bicker over meaningless spending cuts as the nation thunders towards an imminent default on its sovereign debt and by affirming the Unconstitutional Patriot Act, which essentially gave legislative authority for the US to become the wards of an international police state.
The brave souls who gave their lives to create and protect a free America must be rolling over in their graves this Memorial Day.
Will there be a generation brave enough to reclaim it?
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
If the events of the past week have not convinced you that there has been a permanent, fundamental change in the financial markets, perhaps nothing will. As much as the numbers seem to stay the same, one has the sense that something is very, irreparably, wrong.
Trust that sense.
If you are trying to put your finger on what is causing the uneasiness you are feeling, allow us to offer our humble opinion. The world is coming to the realization that all of the financial rescue programs that have been floated as the “cure” to the financial crisis by various Central Banks and Governments have done nothing useful.
To put it harshly, they have not only failed, they have made things worse.
What they have done is to buy time for the banks to sell out of their losing positions and be made whole at the taxpayers’ expense. Now, the jig is up.
The taxpayers see that the fix is in and are calling for the heads of their elected officials. For the most part, the heads have been handed over peacefully via democratic elections. Those that still have their heads are quickly backpedaling and distancing themselves from any Government sponsored bailouts.
With the resolve of the Governments of the west to continue “bailing out” the financial sector clearly in doubt, the heavy lifting is left to the ultimate and most deserving scapegoats, the central banks.
But what can they do? Their only solution involves further exposing themselves for the fraud they are. “If the central bank can simply print the money to pay debts, why should I work?” is the cry from the Proletariat.
That cry is being heard steadily in Greece and now Spain.
Austerity Protests in Athens today courtesy of occupiedlondon.org
It has taken a different tone in the Arab world, where revolution has increasingly been the rule ever since the Gregorian calendar turned to 2011. The media explains what is happening in the Middle East as a “cry for democracy,” as if all of these people would be appeased if they could simply have the pleasure of voting for their dictator, as we do in the west.
No, the Middle East is burning due to the confluence of 1,300 years of festering hatred which for the past 90 years has had the Israeli / Palestinian conflict as its flashpoint and rapidly rising prices for basic necessities, which have always been dear in the desert regions.
These rising prices, of course, are the direct result of the debauchery of the currencies by western central banks.
From our vantage point, it is clear that the central banks have no more room to maneuver and that they will soon throw in the towel as well. Central banking as we know it is expiring.
So who will bail out the western governments and central banks? The taxpayers who have grown to loathe them? Don’t count on it. The simple answer is that no one will. What logically follows is that the world is about to embark upon an amazing journey called “price discovery.” A journey that has been delayed for three long years by the meddling of the authorities will now begin without further delay.
One of the first discoveries will be to find out what are Greek Bonds are worth. Nobody really knows, but unofficially the 10 year note is trading at 51 cents on the dollar. And now the barbarians from the north are storming down demanding that the Greeks make good on their austerity measures or else lose their support which would mean an almost immediate default by the Greeks.
But with riots becoming a way of life, the Greeks are beginning to wonder aloud whether or not the pain is worth it. Our guess is that the barbarians will relent in an attempt to save the Euro. You see, the Greeks still hold the ultimate trump card, as do we all, of defaulting on their debt and doing business in another currency. For the Greeks, it would mean a return to the drachma.
Will they play it?
With the utter and complete failure of the world financial system at hand, those who soberly decided not to heed Harold Camping’s rapture warning and are looking forward to a world that will exist post October 21. We believe that the world will increasingly turn their collective attention to Palestine.
We recently read The Haj in an attempt to beef up our understanding of the conflict. You can read our review of this book at https://davidmint.com/?p=361.
The summary is that Palestine needs a miracle for there to be peace between the Israelis and the Palestinians. This conflict will move to center stage as a distraction to the aforementioned utter and complete failure of the world financial system.
What has become crystal clear to us over the past two months is that if there is not peace in Jerusalem, there cannot be peace in the world. Those of us who believe in Jesus (if you do not, please accept this as an invitation to believe) will not be raptured until there is peace in Jerusalem. We do not know exactly why, we simply know that this is true.
*See FED Perceived Economic Effect Rate Chart at bottom of blog. This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy. This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.
Rationale – Speculation of Greece exiting Euro, which in the long run should strengthen the Euro, to initially cause concern about durability of currency union. Euro holders to buy dollars until storm settles.
Result of Call for May 20, 2011: Gold to Rise. Was $1,514.70, Currently $1,525.90. Good Call
Calls to Date: Good Calls: 22, Bad Calls: 14, Batting .611
Rationale – Emergency meeting called in Luxembourg to presumably bail out Greece once again. Expected intervention to prop up the dollar under guise of bailing out Greece.
Result of Call for May 3, 2011: Avon Products (AVP) to fall. Was $30.91, Currently $29.04. Good Call.
Calls to Date: Good Calls: 13, Bad Calls: 10, Batting .565
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