Jim’s Mailbox

Posted at 7:25 PM (CST) by & filed under Jim's Mailbox.

This is an ancient observation true even today – that most people spend their childhood in pranks and play, their youth in sports, pleasure and pastime, middle age in plans and schemes to pile up a fortune, and old age in hospitals trying to bolster failing health through failing wealth. Earning and spending, one fills their time with work and worry. People are busy with a number of attempts to earn happiness, but success is little and short-lived. The only panacea for all ills, the effort that will result in total victory is the control of the mind, which is the master of the senses. Every sense organ is an outlet for energy that binds one to the objective world. The senses are induced by the mind to move out and attach themselves to objects. You must make the mind submit to wisdom, which discriminates between right and wrong. Then the mind, instead of harming, will help you.
SSB, Oct 2, 1965

What Does the Invisible Hand Already Know About The Final End Game?
CIGA Eric

Jim’s timeline commentary does a great job explaining why QE has become the global policy tool of choice to kick the can (excessive debt of the Western economies) down the economic road.

In my opinion, his best observation “once on the QE road there is no exit other than business recovery success which will not occur” explains why gold is rallying and capital flows remain defensive despite periodic risk-on reallocations.

For instance, a great indication that infinite QE cannot remove the can from the road is revealed by the actions of the invisible hand in the US Treasury market. US Treasury bonds sold off sharply once the Fed announced QE(n) disguised as QE3. Experts were quick to proclaimed QE3 as highly inflationary and pronounce US Treasuries as dead money.  An untold number of bodybags have been filled by investors eager to proclaim long bonds as dead money.

My September 14th commentary (US Budget Deficit Hits $1.16 Trillion Through Aug ), I wrote

Accumulation of US Treasury bonds by the invisible hand during the sharp selloff as part of a weak to strong hand transfer would suggest trouble in 2013. This has been illustrated by a rising DI reading as price declines. Last week’s sharp selloff has yet to be included in the computer analysis illustrated below (chart 2).

What did the invisible hand do?  A sharp increase in Treasury Bond’s diffusion index (DI) from -5% to 43% screams ACCUMULATION during the selloff (chart).  Anyone screaming ‘sell bonds’ once DI exceeds 60% will be standing on thin ice.

Chart:  US Treasury Bond 20YR+ (TLT) And US Treasury Bond Diffusion Index (DI)
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Observations:

  • The invisible hand is accumulated the US Treasuries into weakness warns of trouble ahead.
  • Positive and negative divergences displayed by drug and transportation stocks, respectively, warn of trouble ahead.
  • Jim suggests that the end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit.  As usual, he’s correct.  Smart money, generally too big for quick and discrete decision-making, often positions well in advance of cycle highs and lows.  Cycle highs and lows generally coincide with headline events.  Numerous negative and positive divergences between sectors and markets suggest that smart money already knows the importance of 2015.

My dear extended family:

The final end game of QE 3 to Infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar therefrom.

Lets review what has transpired:

  1. OTC derivatives manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system.
  2. Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a Derivative Resurrection Bank. Losers would have rejoiced and winner would have declared war. However when Lehman was forced into bankruptcy it broke the "Daisy Chain" (a chain of near risk-less transaction when netted) of the OTC derivatives scam. At this point winners had won huge and loser had lost huge and there was no longer a means of repair to the quadrillion dollar scam.
  3. The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International settlement, the counter internationally.
  4. The Bank of international Settlements seeing this outrageous number changed their computer method of valuation to maturity assuming no failures and reduced the number of OTC derivatives of all kinds to a more acceptable huge number of $700 Trillion.
  5. In the first and second round of QE the Federal reserve purchased OTC derivatives and Securitized Mortgage debt generally at issue price to remove them from the balance sheets of the Western world financial system. That means the Federal Reserve has impaired its balance sheet in order to repair some of the balance sheet integrity of the Western world financial system. The amount they have purchased is quit small as compared to total outstanding OTC derivative paper of all varieties above one quadrillion dollars.
  6. The reason for QE to Infinity, QE 3, is the failure of business activity in the Western world to pick up with early huge monetary stimulation so as to repair the balance sheet of the Western financial world financial system.
  7. The crisis not seen by Fed observers is the true balance sheet condition of the losers on the more than one quadrillion OTC derivative fraudulent paper. This is thanks to FASB, the gate keepers of Western world accounting that allows financial institutions to value their value-less OTC derivative paper at whatever their computers say with no reference to any market value.  Many specific performance contracts, the definition of the majority of OTC derivative simply have no market.
  8. As QE 3 to infinity moves ahead the balance sheet of the Federal Reserves continues to acquire worth – less paper in exchange for dollars usually paying the issue value for worth-less paper.
  9. The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit.

Source:  jsmineset.com

More…

Jim,

The short term AU series (slide 11) is still looking for $2200 mid November.

The longer term AU series (slide 1) suggests higher – but in a measured way.

Thank you,
CIGA Drew (aka Paracelsus)

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