Monday, November 9, 2009

Liquidity is Gone in Stock Market

Liquidity is gone
The #1 question
Liquidity - it means having an ample supply of ready buyers so that when you bring whatever it is you have to market, there are people with money who are ready, willing and able to buy what you have to sell.

When you invest in stocks, you are entirely dependent on liquidity. If liquidity dries up there is literally no one to buy your shares. Without buyers, prices plummet and only stop when they hit values so low they are "ridiculous."

The #1 stock market question is this: Is there real liquidity in the market? Or to put it more simply, are there real buyers ready, able and wiling to buy stocks?

Rising prices and big volumes alone is not enough information to provide an answer this question.

Here's a reality check

Are investors behind the current market bounce?

I don't think they can be.

Here's why:

1. Private and institutional investors are sitting on 30% to 50% stock losses which they first have to SELL to raise cash to buy more stock.

2. If they're getting cash from stock sales, they have 30 to 50% LESS money to play with then they had a year ago. That is not good for liquidity.

3. If they're bringing in new money, where is it coming from?

Up until very late in 2008, there was very little cash sitting on the sidelines. How then can there be MORE cash available for stock purchases NOW after so much wealth was destroyed in the last several months?

4. If the new money in the market isn't coming from stock sales or from cash reserves, it had to come from somewhere.

It's possible then that stock prices are not being pushed up by legitimate buying but are instead being pushed up by a handful of high volume players who were given mountains of cash by the US government to "keep the banking system from melting down."

5. We know a few things about the trillions of dollars the US gave away in the past year:

a) It went almost exclusively to a handful of banks that maintain very aggressive trading programs

b) A big chunk of it is "missing" - the Obama administration literally can't (or won't) account for it

c) This money sure hasn't shown up in increased credit availability to consumers and businesses. Bread and butter business credit services remain in the doldrums.

The big question

Is is really possible that the trillions given to "the banks" is what's being used to create the illusion of a liquid, rising stock market that's "bouncing back?"

Not only is this a possibility, it's a probability because it's the only scenario that makes sense if you accept the analysis above. They liquidity has to be coming from somewhere and logic says the most likely source are federal government funded financial institutions, not investors who are less willing and certainly less able to play the equity shell game.

The truth about the Crash

If you look at charts of how markets collapse, for example the stock prices of the Depression of the 30s, the fabled "Crash" of 1929 was actually a mild retracement compare to the real collapse that followed.

Don't take my word for it.

Look at the charts from that era and then compare them to the charts from the collapse of the Japanese stock market which started in 20 years ago and still is not even close to recovery.

The next shoe to drop

Who cares if stock market prices collapse? After all, the stock market isn't the whole economy, right?

Here's the big problem:

Stock prices dramatically effect the health of pension funds and pension funds are the biggest holder of private wealth in the US and one of the country's biggest social stabilizers.

If stock prices continue to fall, pension funds will find themselves unable to meet their commitments.

Pension failures will result in more credit card default, more foreclosures, and more personal bankruptcies as people who counted on payments stop receiving them or receive less than they expected. This will lead to ever lower real estate prices, lower demand for all kinds of goods and services, and more business bankruptcies.

This will result in a vicious cycle that will spiral downwards until a true bottom is reached.

When the true bottom is finally reached, history shows that there won't be a vigorous "bounce" from the bottom. Instead there will be a long, slow stabilization period during which the financially wounded recover and rebuild (those who are able to that is.)

The last time this happened, it took over 30 years for stock prices and the economy to recover.

In fact, you can say accurately that the recovery did not take place until those who were 40 years and older during the Crash of the 30s were carried off the playing field and a new group of people sat down at the table to play who didn't bear the scars of their parents.

A key point for understanding what's still possible

The original "Crash" of 1929 that historians moan and groan about was NOTHING compared to what followed in 1931 to 1932.

Again, don't take my word for it. Look at the charts from that era. You'll see that it's impossible to overstate the seriousness of the potential precipice we're standing on - all the worse because "rising stock prices" are lulling people into a sense of false security.

The fact that a professional trader - with access to and an interest in knowing who is actually providing the volume on the "buy side" of this market - says the buying is coming from just a handful of "momentum" players is a sign that we may be in for a much more severe crash in the near future than most people can imagine.

9-11 Inside Job and Neocons Hacked 2004

Barry Jennings, Deputy Director, Emergency Services Dept., New York Housing Authority, on the Alex Jones Radio Show.

Barry Jennings, Deputy Director, Emergency Services Dept., New York Housing Authority, on the Alex Jones Radio Show. He was in WTC 7 before it collapsed and heard explosions and saw lobby destroyed with many dead bodies. This is all before WTC 1 & 2 collapsed.

Broader Measure of U.S. Unemployment Stands at 17.5%

For all the pain caused by the Great Recession, the job market still was not in as bad shape as it had been during the depths of the early 1980s recession — until now.

With the release of the jobs report on Friday, the broadest measure of unemployment and underemployment tracked by the Labor Department has reached its highest level in decades. If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.

This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time.

The official jobless rate — 10.2 percent in October, up from 9.8 percent in September — remains lower than the early 1980s peak of 10.8 percent.

The broader rate is highest today, sometimes 20 percent, in states that had big housing bubbles, like California and Arizona, or that have large manufacturing sectors, like Michigan, Ohio, Oregon, Rhode Island and South Carolina.

The new benchmark is a sign of just how much damage financial crises tend to inflict. A recent book by Carmen M. Reinhart and Kenneth S. Rogoff, two economists, found that over the last century the typical crisis had caused the jobless rate in the country where it occurred to rise for almost five years. By that standard, the jobless rate here would continue rising for two more years, through the end of 2011.

Most economists predict that the rate will in fact begin to fall next year, largely because of the federal government’s aggressive response — fiscal stimulus, interest-rate cuts and a variety of creative steps by the Federal Reserve and Treasury Department. Friday’s report showed that monthly job losses continued to slow recently, though the improvement has been gradual.

At the White House Friday, President Obama signed a bill to extend unemployment benefits and a tax credit for home buyers, and said that he was looking at ways to enact more stimulus. On Wednesday, the Fed announced that it expected to leave its benchmark interest at zero for “an extended period.”

Nearly 16 million people are now unemployed and more than seven million jobs have been lost since late 2007.

Officially, the Labor Department’s broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970. If such a measure were available for the Depression, it probably would have exceeded 30 percent.

Compared with the early 1980s, a smaller share of workers today are officially unemployed and a smaller share are considered discouraged workers.

But there are many more people who would like to be working full time and have been able to find only part-time work, according to the government’s monthly survey of workers. The rapid increase in their ranks and in the officially unemployed has caused the rate to rise much faster in this recession than in the early 1980s. Two years ago, it was only 8.2 percent.

One of the more striking aspects of the Great Recession is that most of its impact has fallen on a relatively narrow group of workers. This is evident primarily in two ways.

First, the number of people who have experienced any unemployment is surprisingly low, given the severity of the recession. The pace of layoffs has increased, but the peak layoff rate this year was the same as it was during the 2001 recession, which was a fairly mild downturn. The main reason that the unemployment rate has soared is the hiring rate has plummeted.

So fewer workers than might be expected have lost their jobs. But those without work are paying a steep price, because finding a new job is extremely difficult.

Second, wages have continued to rise for most people who still have jobs. The average hourly wage for rank-and-file workers, who make up about four-fifths of the work force, actually accelerated in October, according to the new report.

Even though some companies have cut the pay of workers, the average hourly wage has still risen 1.5 to 2.5 percent over the last year, depending on which government survey is examined. Average weekly pay has risen less — zero to 1 percent — because hours have been cut. But average prices have fallen. Altogether, the typical worker has received a 1 to 2 percent inflation-adjusted raise over the last year.

In the other two severe recessions in recent decades, workers with jobs fared considerably worse. At the same point in the mid-1970s downturn, real weekly pay had fallen 7 percent; in the early 1980s recession, it had fallen 4 percent.

It is a strange combination: workers who still have a job are doing better than in other deep recessions, but the unemployment and underemployment have risen to their highest level since the Depression.


Dollar Will be Utterly Destroyed: Global Currency, New World Order

The dollar will get “utterly destroyed” and become “virtually worthless”, said Damon Vickers, chief investment officer of Nine Points Capital Partners. Due to the huge wage disparities between the United States and emerging markets like China, Vickers said that may resolve itself in some type of a global currency crisis.

“If the global currency crisis unfolds, then inevitably you get an alignment of a global world government. A new global currency and a new world order, so we may be moving towards that,” he said.

I'm doing 'God's work'. Meet Mr Goldman Sachs

The Sunday Times gains unprecedented access to the world's most powerful, and most secretive, investment bank

Number 85 Broad Street, a dull, rust-coloured office block in lower Manhattan, doesn’t look like a place to stop and stare, and that’s just the way the people who work there like it. The men and women who arrive in the watery dawn sunshine, dressed in Wall Street black, clutching black briefcases and BlackBerrys, are very, very private. They walk quickly from their black Lincoln town cars to the lobby, past, well, nothing, really. There’s no name plate on the building, no sign on the front desk and the armed policeman stationed outside isn’t saying who works there. There’s a good reason for the secrecy. Number 85 Broad Street, New York, NY 10004, is where the money is. All of it.

It’s the site of the best cash-making machine that global capitalism has ever produced, and, some say, a political force more powerful than governments. The people who work behind the brass-trim glass doors make more money than some countries do. They are the rainmakers’ rainmakers, the biggest swinging dicks in the financial jungle. Their assets total $1 trillion, their annual revenues run into the tens of billions, and their profits are in the billions, which they distribute liberally among themselves. Average pay this recessionary year for the 30,000 staff is expected to be a record $700,000. Top earners will get tens of millions, several hundred thousand times more than a cleaner at the firm. When they have finished getting "filthy rich by 40", as the company saying goes, these alpha dogs don’t put their feet up. They parachute into some of the most senior political posts in the US and beyond, prompting accusations that they "rule the world". Number 85 Broad Street is the home of Goldman Sachs.

The world’s most successful investment bank likes to hide behind the tidal wave of money that it generates and sends crashing over Manhattan, the City of London and most of the world’s other financial capitals. But now the dark knights of banking are being forced, blinking, into the cold light of day. The public, politicians and the press blame bankers’ reckless trading for the credit crunch and, as the most successful bank still standing, Goldman is their prime target. Here, politicians and commentators compete to denounce Goldman in ever more robust terms — "robber barons", "economic vandals", "vulture capitalists". Vince Cable, the Lib Dem Treasury spokesman, contrasts the bank’s recent record results — profits of $3.2 billion in the last quarter alone — and its planned bumper bonus payments with what has happened to ordinary people’s jobs and incomes in 2009.

It’s even worse in the US. There, Rolling Stone magazine ran a story that described Goldman as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". In his latest documentary, Capitalism: A Love Story, Michael Moore drives up to 85 Broad Street in an armoured Brinks money van, leaps out carrying a sack with a giant dollar sign on it, looks up at the building and yells: "We’re here to get the money back for the American people!"

Goldman’s reputation is suddenly as toxic as the credit default swaps and other inexplicably exotic financial instruments it used to buy with glee. That’s bad for the one thing it values more than anything else: business. Being the prime target for popular and political outrage could put Goldman first in line for draconian new regulation. So it has, reluctantly, decided that the time has come to speak out, to fight its corner. That’s how, on one of those bright autumnal New York mornings when anything seems possible — even an invitation to break bread with the masters of the universe — I find myself walking past the security guard who held up Michael Moore and into the building with no name.

"Aha! You catch us plotting in real time," says Lloyd Blankfein, breaking away from a cabal of senior executives discussing his trip to Washington the previous day. Blankfein, 55, Goldman’s chairman and chief executive, is wearing a grey suit with a jaunty Hermès tie with little red bicycles on it. In his hand, he’s carrying one of those cups of coffee that look bigger than the human stomach. Maybe it’s the caffeine, maybe it’s the tie — a birthday present from his daughter — but he’s in a remarkably jolly mood for a man everyone seems to hate. "It’s like a safari here," he jokes. "You’ve come in to look at the animals."

Blankfein may be Wall Street’s Sun God, but, with the economic outlook stormy, he doesn’t want to advertise it, so the merest hint of a status symbol or — horror! — ostentation is airbrushed out of his life, publicly, at least. Take his office on the 30th floor. The chairs are the same ones that were there when he became CEO three years ago. There are none of the $87,000 handmade rugs or $5,000 wastepaper baskets of Wall Street lore. There’s no sign of irrational exuberance. Only coffee, which arrives cold. It sets just the right tone for the job in hand. The grand wizard of Wall Street is steeling himself for the hardest sell of his life: he’s here to argue for good ol’ capitalism, for investment banks and for Goldman Sachs.

Luckily for him and his firm, he’s a damn good salesman. He starts with a little humility. He understands that "people are pissed off, mad, and bent out of shape" at bankers’ actions. Goldman played its part in the meltdown that almost destroyed the global financial system. It, like most other banks, lent too much money, made its first quarterly loss for more than a decade last year and ended up taking bail-out cash from Washington. "I know I could slit my wrists and people would cheer," he says. But then, he slowly begins to argue the case for modern banking. "We’re very important," he says, abandoning self-flagellation. "We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle." To drive home his point, he makes a remarkably bold claim. "We have a social purpose."

Social purpose? Those who have lost their jobs or seen their pay slashed thanks to bankers who flogged dodgy mortgages and dreamt up investments so complex not even they understood them, would gladly tell him where to stick his social purpose. But the problem is, Blankfein is a good advertisement for wealth creation. His own. He is no scion of privilege, dispensing plummy-voiced homilies to raw capitalism from his 30th-floor eyrie. Born in a tough neighbourhood in the Bronx, the son of a postal worker and a receptionist, he was the first in his family to go to college and used financial aid to go to Harvard.

Even though he proudly pays himself more in a year than most of us could ever dream of — $68m in 2007 alone, a record for any Wall Street CEO, to add to the more than $500m of Goldman stock he owns — he insists he’s still "a blue-collar guy".

But what about the charge sheet? Bankers brought the world to the brink of bankruptcy and instead of doing the decent thing and jumping out of the nearest window, they turned up cap in hand to governments to hoover up taxpayers’ money to save their skin. Now, just one year on, they are carrying on as if nothing has happened, gambling, and winning, handsomely, with our cash. Goldman’s profits in the second quarter were a record $3.4 billion. Most of the money is being made in trading in bonds, currencies and commodities.

Goldman is coining it again for two reasons. First, global markets are booming — up 50% from the credit-crunch lows, as new money, much of it from governments, has gushed into the financial system. Second, with Lehman Brothers and Bear Stearns off the street, Merrill Lynch a crippled shadow of its former self, and neither Citigroup nor UBS the forces of old, Goldman has a bigger slice of a growing pie. "We didn’t f*** up like the other guys. We’ve still got a balance sheet. So, now we’ve got a bigger and richer pot to piss in," is how one Goldman banker puts it. Small wonder the bank is on course to set aside over $20 billion for salaries and bonuses.

So far, so lucrative. But isn’t it simply unfair? Isn’t Goldman acting as the modern equivalent of war-time profiteer, taking advantage of global crisis and emergency government action to mint millions? Even the veteran financier George Soros says the big profits made by Wall Street banks are "hidden gifts" from the state.

Blankfein dismisses any suggestion that Gold-man needed to be bailed out, and, by extension, rejects any notion that the firm is now profiting from public support. Sure, he took $10 billion from Washington’s Troubled Asset Relief Program (Tarp). But the bank has since repaid the cash, with healthy interest — 23%. Goldman also bene-fited from the federal bail-out of the huge US insurance firm AIG. Goldman had bought $20 billion worth of insurance from AIG and received billions of dollars — perhaps as much as $13 billion — when Washington pumped $90 billion into the stricken giant. But Blankfein insists Goldman was "hedged" against any AIG losses, in the best possible way — with cash. So even if AIG had gone under, Goldman would not have suffered. Critics say that had AIG gone bust, the entire financial system could have collapsed, taking Goldman with it. What’s more, at the height of the crisis, the Federal Reserve broke with an 80-year-old tradition and let Goldman turn itself from a pure investment bank into a bank holding company. This meant it could borrow funds at the same cheap rate as commercial banks for as long as it wanted. Blankfein says Goldman changed status not for the money, but because it had become clear, following the collapse of Bear Stearns and Lehman, that the market had lost faith in the ability of the US Securities and Exchange Commission to regulate investment banks. Being regulated by the central bank, the Federal Reserve, would help to restore confidence in the financial system as a whole.

Whatever the truth behind the bail-out, not even the smartest Goldmanite can deny that it is only thanks to government aid that the bank still has a financial system to work with. Washington has bolstered the US economy and banks to the tune of $12 trillion. Does Blankfein not acknowledge that it is maddening for most of us to watch Goldman gobble up so much cash while we struggle? Quite the opposite. He insists we should be celebrating his bank’s success, not condemning it. "Everybody should be, frankly, happy," he says. Can he be serious? Deadly. Goldman’s performance, he argues, is the firmest indication of a nascent economic recovery that will benefit not just him and his firm but all of us. "The financial system led us into the crisis and it will lead us out."

Blankfein goes on to say something equally audacious. We should welcome the return of titanic paydays at Goldman. Goldman is exempt from President Barack Obama’s cap on bonuses because it has paid back bail-out cash. Paying top dollar to recruit and retain the best bankers won’t sink the system, he claims, but save it. Performance-related pay is a guarantee of high-quality responsible banking. "If you examine our practices on compensation, you will see a complete correlation throughout our history of having remuneration match performance over the long term. Others made no money and still paid large bonuses. Some are not around any more. I wonder why."

Many disagree, arguing that in the new, flatter economic landscape, megabucks pay is no longer necessary. Lucian Bebchuk, professor of law, economics and finance at Harvard Law School, says: "These days, it’s easier for banks to keep their employees from being raided. The outside opportunities are less attractive now than in 2007."

Okay, forget bail-outs, forget bonuses, forget all the money stuff, if you can. Surely Blankfein cannot dodge the playwright David Hare? Through his latest work, The Power of Yes, which tackles the issue of the credit crunch, Hare argues that it is "blackmail" to say that there cannot be a recovery unless we let bankers get on with what they have always done and pay themselves squillions. It’s like what the miners did in the 1970s, only this time the National Union of Mineworkers is the City and Wall Street. Blankfein has no time for such soft talk. Bankers are not miners. "I’ve got news for you," he shoots back, eyes narrowing. "If the financial system goes down, our business is going down and, trust me, yours and everyone else’s is going down, too."

Like a patient who has survived a near-death experience, for Blankfein the credit crunch has rekindled his innate passion for moneymaking. Talking to him is like talking to a man who has greenbacks, not blood, running through his veins. He believes he’s good at what he does and what he does is good. He has his supporters. Vanity Fair awarded him the coveted No 1 spot in its 2009 New Establishment list, its league table of the 100 top power players in the information age, above such luminaries as the Apple boss, Steve Jobs, and the Google founders, Sergey Brin and Larry Page. Others, such as the New York Times columnist Andrew Ross Sorkin, argue that the public "cannot have it both ways". At the height of the crisis last year, Sorkin recalls, "many crossed their fingers, hoping Goldman and the rest of Wall Street would be saved to halt the downward spiral. But now when the banks finally get back on their feet, we want them to fall flat again".

Like it or loathe it, one thing is unarguable: "Tenacious G" does seem to draw the winning hand in good times and, as we have seen recently, in bad. It begs one simple question. How? What’s in the special sauce? To try to find the answer, you have to leave Blankfein’s office and take the lift to the 17th floor. On the way, you hear investment bankers, traders, "strats" — strategists — and "quants", the mathematical lizard brains who dream up whizzy trading formulae, discussing "interest rate swaps", "no credit defaults", "exotic and vanilla options", "bid-ask spreads", "bunds", "bobls" and goodness knows what else. You can’t see the cash whizzing around 85 Broad Street as you walk through the place, but you can feel it being shuffled 24 hours a day between central, commercial and investment banks, vast companies, Russian oligarchs, Middle Eastern movers and sheikhers, Texas oilmen and secretive billionaires in Bermuda and the Cayman Islands.

In an office with an ink stain on the carpet, sits Liz Beshel. She’s the first ingredient of Goldman’s witches’ brew. The firm only hires the very, very brightest and they don’t come much sparkier than Beshel. The 40-year-old single mother talks so fast, and with such insight into financial markets, you practically need a degree from Harvard Business School to keep up. She was snapped up by Goldman straight from college and managed to get an executive MBA from Columbia University, New York, "on Fridays". As you do. She rose quickly though investment banking to become the firm’s youngest-ever global treasurer, the keeper of the cash. Today, every pound the firm invests, every yen it borrows, every dollar that flows on and off its balance sheet, is under her watchful eye, all $1 trillion a day of it. How much cash does the bank have right now? I ask. "$164.2 billion in cash or cash equivalents," she replies without pausing for thought or breath.

It is thanks to rat-tat-tat intellects like Beshel that Goldman Sachs not only has so much money, but tends to be good at hanging onto it. Staff rigorously price — "mark to market", in the jargon — the bank’s assets every day, down to the last cent, and forensically examine daily profit and loss. This helps the bank to see market trends clearly and early and, it believes, to manage risk better than most other banks. "We think we make better decisions," says Beshel. There’s evidence to support the claim. Take the sub-prime mortgage sector, the ticking toxic debt bomb that detonated the economic crisis. One year before bad home loans brought down Lehman and Bear Stearns, forced shotgun marriages of Merrill Lynch to Bank of America and HBOS to Lloyds, and made Royal Bank of Scotland a national joke, Goldman’s daily valuations revealed it had suffered modest losses in its mortgage holdings for just over a week. At most banks, the losses might have gone unnoticed or been dismissed as a rounding error, but Goldman convened a meeting of senior bankers to try to find out what was going on. Even though the housing and mortgage markets were still buoyant, the bank did not like what it saw and began reducing its exposure. When the credit crunch hit, its losses in the mortgage sector were only $1.7 billion, lower than any other big investment bank. UBS lost $58 billion.

Being smarter than the average bear is one thing, but to be a Goldmanite you have to work harder than the average bear too. Ask Sarah Smith, 50, a former convent schoolgirl from Bromley in Kent who left Britain to become Goldman’s chief accountant. "It’s a 24/7 culture," she says. "When you’re needed, you’re here. And if you’re needed and you’re not answering your phone, you won’t be needed very long."

Smith, whose office is a BlackBerry throw away from the Embassy Suites hotel where Goldman staff go for an hour or two’s sleep when they have been up so long that they start sleepwalking along the hallways, only had a few days’ holiday last year. How many weeks off does she get a year?

to continue the story click here ........

When the Dollar Rallies, the Market Will Crash

Interest rates. The Fed does not need slinky women in plunging necklines to peddle money. All it needs is low interest rates. When rates are pushed lower than the rate of inflation, the Fed provides a subsidy for borrowing. This is not as hard to grasp as it sounds. If I offered to give you $1.00 for very 90 cents you gave me in return, you would buy as many dollars from me as you could. The Fed operates the same way. It generates market activity by creating incentives for borrowing. Borrowing leads to speculation, and speculation leads to steadily rising asset prices. This is how the game is played. The Fed is not an unbiased observer of free market activity. The Fed drives the market. It fuels speculation and controls behavior by fixing interest rates.

When Lehman Bros flopped last year, markets went into freefall. A sharp correction turned into a full-blown panic. The bubble burst and trillions of dollars in credit vanished in a flash. Trading in exotic debt-instruments stopped overnight. A global sell-off ensued. Markets crashed. For a while, it looked like the whole system might collapse.

The Fed's emergency intervention pulled the system back from the brink, but the economy is still wracked with deflation. Billions in toxic waste now clog the Fed's balance sheet. The dollar has fallen like a stone.

When the financial system blows up and credit is sucked down a capital-hole, the economy goes into a downward spiral. Businesses slash inventory and lay off workers, workers have to cut back on spending and credit. That creates less demand for products, which leads to more lay-offs. This is the vicious circle policymakers try to avoid. That's why Fed chair Ben Bernanke wheeled out the heavy artillery and launched the most aggressive central bank intervention in history.

The Fed dropped rates to zero, but its Quantitative Easing (QE) program (which monetizes the debt) actually pushes rates even lower to roughly negative 2 percent.

Bernanke has underwritten every sector of the financial system with government guarantees. He has provided full-value loans for dodgy collateral which is worth only a fraction of its original value. The market can no longer operate without the Fed. The Fed IS the market, which is why it is foolish to talk about a "recovery". The idea of recovery implies a free-standing system based on supply and demand. But, for now, the government provides the demand, which is why there is no market and no recovery. Analysts at Goldman Sachs sum it up like this:

"How much of the rebound in real GDP was due to the fiscal stimulus, and where do we stand in terms of the effects of stimulus thus far? Although precise answers are impossible at this juncture, several aspects of the report are consistent with our estimates that the fiscal package enacted in mid-February as the American Recovery and Reinvestment Act (ARRA) would have accounted for virtually all of the growth reported for the third quarter."

Positive growth is an illusion created by government spending. The economy is still flat on its back. Consumer spending and credit are in sharp decline. Unemployment is steadily rising (although at a slower pace) and wages are flatlining with a chance of falling for the first time in 30 years. Deflationary pressures are building. The talk of a "jobless recovery" is intentionally misleading. Jobs ARE recovery; therefore a jobless recovery merely points to asset-inflation brought on by erratic monetary policy. Surging stocks shouldn't be confused with a genuine recovery.

The Fed faces stiff headwinds ahead. Low interest rates can have unintended consequences. The "cheapness" of the greenback has made the dollar the funding currency for the carry trade. Investors are borrowing low-cost dollars and using them to purchase higher-interest assets elsewhere. The process, which is rapidly escalating, is fraught with peril as economist Nouriel Roubini points out in an article in the Financial Times:

"Since March there has been a massive rally in all sorts of risky assets... and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply, while government bond yields have gently increased but stayed low and stable...

But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronized rally... Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fueling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates...

Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing...

...This policy feeds the global asset bubble it is also feeding a new US asset bubble...
The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy... This is keeping short-term rates lower than is desirable... So the perfectly correlated bubble across all global asset classes gets bigger by the day.

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate... the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long-leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments." ("The Mother of all Carry Trades Faces an Inevitable Bust," Nouriel Roubini, Financial Times.)

Everyone who watches the market has noticed the inverse correlation of stocks to the dollar. When the dollar fades, stocks soar. And when the dollar strengthens, stocks plunge. Eventually, the dollar will reverse-course and stage a comeback, probably when Bernanke stops his printing operations. That will trigger the next severe correction which will burst bubbles across all asset classes.

Bernanke's success in reflating sagging asset prices has depended entirely on interest rate manipulation and liquidity injections. There's been no effort to patch household balance sheets, increase production, or strengthen overall demand. It's a clever trick by a master illusionist, but it has its costs. When the dollar rallies, markets will crash. And Bernanke will be responsible.

by Mike Whitney

11/4/09 Jim Rogers on Bloomberg (Part 1/2)

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CNBC - Dollar Will be Utterly Destroyed, Global Currency, New World Order

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Celente: American unemployment rates really around 20%

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Sam Donaldson: Lets Get Rid Of The Fed Now Before They Do Further Damage

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