Jim Sinclair’s Commentary
You must take GOTS seriously. This is a an article that I ask you please to read. It should take just a few minutes. He is absolutely correct about QE never ending but only being given new names and buried in the balance sheet.
May 18, 2015
New York City
Remember all that talk about “taper” last year?
After years of conjuring trillions of dollars out of thin air and rapidly expanding its balance sheet, the Federal Reserve promised to end its unprecedented ‘Quantitative Easing’ (QE) programs.
In total the Fed’s balance sheet exploded from $800 billion to $4.5 trillion between 2008 and 2014. And this wasn’t good news.
A huge balance sheet means that the Fed is overleveraged. It means that they have only a tiny margin of safety in reserve in case there are serious problems in the financial system.
Back in 2008, major banks (like Lehman Brothers, Wachovia, etc.) also had massive balance sheets that were overleveraged, and almost no margin of safety.
When things started to go bad, they all went bust.
So as the Fed spent six years printing money and expanding its balance sheet, they were taking on a substantial amount of risk.
Then in 2014 it supposedly came to an end.
Both Janet Yellen and her predecessor Ben Bernanke promised the world that the Fed would ‘taper’, meaning they would reduce and ultimately eliminate the QE bond-buying programs.
By October, QE officially ended. And the dollar started to strengthen as a result.
But it turns out this was a load of crap.
Every Thursday the Fed publishes its balance sheet for anyone who cares to pay attention, and I track this religiously.
The most recent report showed that last week, the Fed posted a massive increase to its balance sheet– $28.5 billion.
(Most of the increase came from buying mortgage-backed securities– you remember, the ‘toxic’ asset class that blew up in 2008…)
With this huge addition, the Fed’s balance sheet is once again back over $4.5 trillion… within 0.5% of its all-time high.
This is the exact opposite of ‘tapered’. It’s bloated. And dangerous.
The Fed has almost no margin of safety. And if you marked to market the value of the Fed’s assets, they would most likely be insolvent.
Think about the big picture here–
Last week I told you how the FDIC, in its own words, doesn’t think they’re prepared for the next financial crisis. And that major US banks often have razor-thin levels of liquidity.
Now we see the Federal Reserve, once again, has no margin of safety and is effectively insolvent.
And all of this is backed up by the US government that, based on its own financial statements, has a negative equity of MINUS $18 trillion.
This is hardly inspiring.
Most people been brought up to believe that banks are safe. The financial system is safe. The US dollar is safe.
But the objective data here is overwhelming: this system is not safe.
Nobody has a crystal ball… least of all me. It’s possible that things could continue like this for years. Or it could all come crashing down tomorrow. No one knows.
But in the face of so much risk, it certainly makes sense to reduce your exposure.
Hold some assets outside of this system. Own some real assets, whether gold held abroad, overseas property, or a productive business.
Consider moving a portion of your savings to a strong bank in a solvent country abroad.
Bottom line: diversify.
Don’t hold all of your eggs in one basket, especially when that basket is a nation with an insolvent government, insolvent central bank, and overleveraged financial system.
Bank of America: Markets Are in a ‘Twilight Zone’ and It’s Time to Hold More Cash and Gold
by Julie Verhage
8:33 AM EDT
May 18, 2015
In a note sent out this morning, Bank of America Merrill Lynch has a warning for investors:
Investors remain trapped in “The Twilight Zone”, the transition period between the end of QE and the first rate hike by the Fed, the start of policy normalization…until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause either a market or macro shock (as it infamously did in 1936-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes. For this reason we continue to advocate higher than normal levels of cash, adding gold and owning volatility in mid 2015. Given extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield.
The note also highlights two interesting disconnects in the markets:
Investors say they are optimistic, but there is a high level of cash on the sidelines
U.S. stock prices are at record highs, but equity funds are seeing outflows
Regarding the first point, one of Bank of America’s surveys showed investor sentiment as being “risk-on," which it says is normally associated with less cash on the sidelines.
To the second point, the note says U.S. equity funds have suffered $100 billion of outflows in 2015 while the S&P 500 is near all-time highs, which its data says isn’t exactly typical.
This is HOW People Will Lose EVERYTHING — Bill Holter
Billionaire Oil CEO Demands Scientists Terminated After Oklahoma Quake Study
Tyler Durden on 05/17/2015 18:14 -0400
The billionaire CEO of Continental Resources told a dean at the University of Oklahoma that he wanted earthquake researchers fired. In one of the most transparently oligarchic tactics we have seen yet during this ‘recovery’, oil tycoon Harold Hamm demanded certain scientists be dismissed following their findings that fracking wastewater disposal was the cause of the spike in Oklahoma earthquakes. Despite his protestations recently that "I don’t try to push anyone around," as the following email obtained by Bloomberg, exposes, "Mr. Hamm is very upset at some of the earthquake reporting to the point that he would like to see select OGS staff dismissed."
As we noted previously, no matter what other problems may or may not be linked to hydraulic fracturing, or fracking, the disposal of wastewater from oil and gas drilling almost certainly is primarily responsible for the recent spate of earthquakes in Oklahoma, normally a seismologically quiet state.
That’s the conclusion of a report issued April 21 by the Oklahoma Geological Survey (OGS), in which the state geologist Richard D. Andrews and Dr. Austen Holland, the state seismologist, said the rate of earthquakes near major oil and gas drilling operations that produce large amounts of wastewater demonstrate that the quakes “are very unlikely to represent a naturally occurring process.”
Belligerent US Refuses To Cede Control Over IMF In Snub To China
Tyler Durden on 05/17/2015 14:15 -0400
One story that’s been covered extensively in these pages over the past several months is the emergence of the China-led Asian Infrastructure Investment Bank. The bank began to attract quite a bit of attention in early March when the UK decided, much to Washington’s chagrin, to make a bid for membership. The dominoes fell quickly after that and within a month it was quite clear that The White House’s effort to discourage its allies from supporting the new institution had failed in dramatic fashion.
Since then, China has been careful not to jeopardize the overwhelming support the bank has received. While Beijing is keen on expanding China’s regional influence and promoting the widespread use of the yuan, downplaying the idea that the new bank will become a tool of Chinese foreign policy is critical if it hopes to enjoy the long-term support of the many traditional US allies who have become early adopters so to speak. Similarly, China must be sensitive to the perception that the AIIB is the first step towards usurping the dollar as the world’s reserve currency and although Beijing has dispelled the notion of “yuan hegemony” as nonsensical, it’s clear that the renminbi will play a key role in loans made from the new bank.
So while the AIIB certainly represents an attempt on China’s part to realize its regional ambitions (what we’ve described as the establishment of a Sino-Monroe Doctrine) and carve out a foothold for the yuan on the global stage, it’s also a product of Washington’s failure to adapt to a changing world. That is, the establishment of new supranational lenders suggests the US-dominated multilateral institutions that have characterized the post-war world are proving unable (for whatever reason) to meet the needs of modernity.
Americans Are the Most Worried About Losing Their Jobs Since 2009
And consumer confidence has taken an unexpected dip
by Tracy Alloway
10:29 AM EDT
May 15, 2015
The U.S. is supposed to be six years away from the worst of the financial crisis and ensuing recession, but Americans don’t seem to be feeling at all sure that the economy is recovering.
Results of the University of Michigan’s Consumer Confidence survey came out on Friday and showed an unexpected drop of 7.3 points to 88.6. Analysts had forecast that the index would stay roughly the same, at 95.9.
What’s more, people appear to be more worried about losing their jobs. Respondents to the survey reported the highest probability of losing their jobs since 2009.
Stocks take aim at another record high even as a ‘Great Reset’ looms
By Shawn Langlois
Published: May 18, 2015 9:09 a.m. ET
Coming off a second straight day of record closes for the S&P 500, traders are left to muse over whether stocks are butting up against resistance or forging a new path higher. The smart bet is on the latter, if the bottoming process in oil is any indication (see the chart below).
Aside from the historical trends on the crude front, we have a smattering of high-profile retail earnings, some housing data and word from the Fed later in the week that will likely go a long way in coloring the next market move. What we get might also lend some support to the idea of the pending “Great Reset” that George Mason economics professor Tyler Cowen wrote about in a post over the weekend.
“Are these economic problems transitory, or are we glimpsing the beginnings of a grimmer future?” he asks. “No one knows whether or how much of a reset may be underway. Yet I can’t help but wonder which features of current data might prove harbingers of larger, more permanent changes to come.” Check out more from Cowen in our “call” section.
In the meantime, we’re left to deal with this strangely resilient market and the light volume that continues to keep indexes crawling into uncharted territory.
An interesting trend still sticking around is that the rally this year is completely built on the first five minutes of trading. In fact, according to Jones Trading, that opening span has delivered a cumulative S&P gain of more than 4%. The total advance so far this year is at 3.1%.
Buy the close and flip the next morning has been good to short-term traders. That trend doesn’t look like it’s in place this morning. Yet, anyway.
Hugo Salinas-Price-Global Economy in a Terrible Mess, No Way Out Without Suffering
Published on May 17, 2015
Retail mogul Hugo Salinas-Price thinks what is coming is going to be an “apocalypse.” Salinas-Price predicts, “This is apocalyptic. We are in a terrible mess, and there is no way out without suffering. Apocalypse means prices are going to go haywire. Business is going to stagnate. Unemployment is going to prevail. There is going to be enormous disorder. That’s what I see will happen. We are not going to get out of this mess easily. It is going to be painful. One way to avoid pain is to have something you will be able to trade for what you need and that is gold and silver, especially gold.”