Come on down--the devil's in town. He's brought you sticks and stones, to bust your neighbor's bones
Derivatives square up twice a year, March and September. And by my simpleton math, the Gross value of the OTC Derivatives Market has now exceeded one-half a Quadrillion Federal Reserve Notes (FRN's, Dollars don't really exist). Of course we won't know until the Bank of International Settlements accounts for the reckless amount of speculative "Moral Hazard" insurance purchased for 2004.
Can't help but think of those poor Dutch settlers who wandered out into the bays of the West Indies to collect fish in the absence of a tide in their respective harbors, only to be drowned by the ensuing tsunami. Earthquakes were not well understood then and I find very little reason to believe the scope and scale of the existing, UNREGULATED Over the Counter Derivatives Markets are understood all too well today.
The Nobel Laureate who managed to blow up LTCM is still in business today, chilling and grilling with the rest of levered speculators, placing even larger bets on outcomes with absolute clarity. Master Chef's one and all, cooking up a dizzying array of malnourished and empty entrées, Bobby Flay condiment squirt bottles in hand. Those dishes must look appealing, but I suspect, much like the daily cheese platters served up maintain the current levels in the equities markets, too much dairy can be a bad thing.
Yet Fukisan and Japan remain rather firm on the bid for United States Treasury & Agency Promise Confetti; milking the spread and maintaining the illusion of prosperity in the land of the setting sun. Toyota offering rebates on Camry's... when was the last time that happened? Something doesn't quite jibe here. If you're going to avoid cannibalizing your own internal markets, you'd better make sure the accumulated $12 trillion in savings is well preserved.
In reality, that $12 trillion is mostly ill-liquid, trapped within an insolvent financial system that dare not mark to market its losses or the above "savings" would vaporize. Spectacular!
Such is the nature of the Banking Cartel's (Central Bankers) inflationary ways. Debase the debt they've financed with even more of the same. Depending on where you're receiving your smoke signals, the campfires around the "____ Flation Range" are ablaze with all sorts of logical kindling... from deflationary debt collapse to hyperinflation, then debt collapse... all the way back to collapse, then more hyperinflation.
So am I, my go to guys in times of internal disarray & crisis are all sending mixed signals, true north is lost due to variation in the earth's magnetic fields and deviation within my own proximity to "disturbances."
He's stuck his missiles in your gardens, and his theories down your throat... And God knows what your gonna do with him, Cos I certainly don't.
"When your only tool is a hammer, everything looks like a nail."
Steve, an Honest Money compatriot and outspoken Voice of reason, has an innate precision in the arena of common sense.
Inflections arrive at pivotal moments for me as I stare across the sky looking for smoke to transcribe and it's a welcome event when someone helps you adjust your own misguided baring. Hitting the nail on the head is not something anyone's much adept at these days, revelation brought comfort and good whiskey to our campfire... the compass, it be busted.
In one of those unflinching moments of clarity yesterday, "Shan the Rustler" assisted me in re-discovering Bob Precther's camp over by $200 Gold junction. Turns out, old prospector Bob has been far closer to $200 gold than even he imagined. In fact, he's too damn high... in real... real inflation adjusted terms anyway. Their claim's been staked, and warning signs are everywhere.
The good Doctor Dinero managed to put up some interesting charts over the past year showing the actual relationship to Federal Reserve Notes (FRN's) in circulation to the price of gold. If the tumbleweeds in my head memory serve... $2500.00 or thereabouts.... Now that is some SERIOUS debasement of the stuff we pass around as "Money." It may be why the FED still carries GOLD on its books at around $42 FRN's.
Attention Prectherites, Bob was close, but still off by around $130.00 in real terms. I believe the FED should immediately adjust the "PRICE OF GOLD" in FRN's to $70.00 and NOW dammit!
Yesterday's scorched earth policies clearly burned a lot of brush surrounding the FED's camp as Mr. Magoo (windsurfism) clouded the sky with smoke once again:
"Greenspan sees rebound in China in second half '04"
"Greenspan says euro zone economy remains 'sluggish'"
"Greenspan says Japan growth may be 'self-sustaining'"
"Greenspan sees chance of hard landing in China"
followed by more billowing plumes of WMD's...
"Greenspan can't say if housing bubble due to poor data"
"Greenspan: More data needed to declare a housing bubble"
Forgive me, but Chairman Greenspan... your "sight" is about as good as that Magoo fella's attempting to dive for pearls in a swimming pool of Diet Coke. If your prior omnipotent powers of observation are to be used as a guide... you are far more likely to dive head first onto the pool deck.
Finally, I was more than a bit disturbed by the following plume served up by Reuter's last night:
"WASHINGTON (Reuters) - A pickup in global growth has gained steam over the past year but some countries like Japan face a significant threat if oil prices remain elevated, Federal Reserve Chairman Alan Greenspan said.
In written responses to questions submitted to Greenspan on July 20 before the Senate Banking Committee and made public on Tuesday, the Fed chief said recovery "has become both stronger and more sustainable" over the past year.
"Growth has strengthened in every major region compared with the sluggish performance during the first half of 2003, and recent indicators suggest that the foreign economies continue to put in a favorable performance," Greenspan said.
Europe trails the pack, though it too was growing.
"The pace of recovery in the euro area has been sluggish, however, with particularly weak activity in Germany," Greenspan said.
The Banking Committee received Greenspan's responses on Aug. 18 and circulated them to members before making them public.
In response to a question about soaring house prices, Greenspan conceded that in some areas prices have outstripped growth in incomes and rents. "This observation raises the possibility that real estate prices, at least in some markets, could be out of alignment with the fundamentals."
Concern has been expressed in Congress and elsewhere that home prices in some metropolitan areas have shot up at such a pace that they constitute a "bubble," which could burst to the detriment of owners and the broader economy.
Greenspan cautioned that, after a period of very low mortgage rates, it was hard to get a clear measure of home-price rises, but policy-makers were watching the issue.
"As is the case with other asset prices, we monitor real estate prices closely in developing our economic outlook," he said.
He said Japan, which went through a decade-long period of stagnation before its economy began to grow last year, seemed to "finally be on its way to a self-sustaining recovery" but faced risks.
"In particular, the recent run-up in oil prices, if sustained, may exert a significant drag on Japanese economic activity," Greenspan said. Japan is wholly dependent on imported oil, which reached nearly $50 a barrel recently, but closed on Tuesday at just over $45."
Believe it was the Russell camp that mentioned his father's 10% rule on Real Estate... an age old, HISTORIC METRIC. If you buy a $750,000.00 home on CREDIT, you had best assume your operating costs will be $75,000 per anum. Of course that was before we had G.Willy (aka Magoo) cheerleading everyone towards the short end and Variable Rates, alas... historic metrics are usually historic for a reason as will be 3.75% adjustable rate mortgages, history at some point in the very near future.
The rent I pay doesn't even begin to approach a third the carrying costs of my current residence. In fact, I can't find an income property locally that comes within one half that Depression Era Russell guy Father's metric. My data appears pretty CLEAR... it's a bad financial bet to buy "stuff" that masquerades as a hard asset, but can't support itself as a financial proposition.
Somehow 7.4 homes for every 10 Americans strikes me as a rather soft proposition.
To hell with it, I'm going to send out a few more "Housing is in an UNPRECEDENTED BUBBLE" signals anyway. It adds up, and although or distinguished FED Chair appears to need more data, in my locale... it's crystal clear.
Down by the river, I've been washing out my mouth, Cos deep in the heart of me, there's a frightened man breaking out.
So where does that leave us?
I have NO clue, as it depends on those fruitcakes passing themselves off as Central Bankers.
But being an Angry White Guy (AWG for you Mogambo), I do have an OPINION.
Point A or thereabouts
Suggests the EPIC dislocation in CREDIT (aka DEBT & more DEBT) is blowing off and will continue until it cannot. Now quite a few campfires suggest it's an election year and those are bullish. Hmmm... so was 2000 and yet TRILLIONS of FRN's in WEALTH went to "Money Heaven" (aka were transferred to someone else).
In addition, it suggests Japan will continue purchasing our Illusions to prevent the Sun from setting. It implies Credit, Broad Aggregate Creation and denial will remain plentiful. It may very well suggest rampant, but Unconventional Hyperinflation is already underway. The FED's willingness to monetize debt remains within its very own and plentiful appetite for destruction and the "Sky's the limit" for just how grossly disfigured this insanity will become.
Point B or thereabouts
Implies that 10,794.95 was the high for 2004 and that it's basically all DOWNHILL from here for the United States Equities Markets and with it... well, you know... the Abyss of Darkness opens wide according to numerous campfires smoke signals.
The current counter-trend rally is off point 24 and after it's complete, then say hello NEW LOWS.
By hook or by crook, more likely both... I suspect there's going to be a battle waged at point 25 like we've never seen... 990N will have ingested enough steroids to make even that Atlas guy shrug.
Doug Noland has all too clearly staked his claim in the "Debt Collapse" gulch. That causes this observer to pause as Mr. Noland has been shooting needles off cacti at 1000 yards for as long as I can remember. He's running counter to my new and improved "Unconventional Hyperinflation" thesis, so I'm taking into careful consideration and re-assessing that position.
Essentially, he's called the FED a bunch of halfwit monetary clowns. And although they've no real control over what constitutes money these days, they've clearly allowed the moral hazard to compound with negative real interest rates at unimaginable lows. Those FED Pranksters are directly responsible for our current economic malaise and financial disarray... yep, can't argue with that.
As for Point C, well that had better be obvious. Standards of Living around the globe will have begun to converge.
Oh I was just looking for paradise, anywhere in this world. While they're gunning for heaven -- From this man made hell!!!
In sum, all these "Promises" look very sketchy to this observer. Debt that cannot be repaid, a Spread Capturing - Carry Trade Economy locked into an Economic / Financial Spirals of ever increasing demand for Credit... THAT has to end at some point.
A fellow observer once imparted divine wisdom my way, and I won't soon forget it:
"Think like a criminal." Eric remarked.
Yep, a very good idea, simple and direct. That Occum guy would be proud of such proclivity.
Even the criminals are trapped in this glob of rubber cement that morphs into an every grotesque blob of stickyness. Thinking like a good criminal, ONE thing I KNOW I would try is to unwind the Carry Trade with sharply devalued FRN's (confetti) thereby realizing MASSIVE profits on the Carry and thereby attempting to preserve the very Banking System.
Of course, Japan has been trying for well over a decade, and look where its gotten them.
The best way to do this would be to devalue the "Dollar" (FRN) in Forex without upsetting the apple cart. Of course this will be a difficult proposition in the here and now, but given the potential to absolve the banks of their reckless usury, financial institutions appetite for packaging junk, and the need for increasingly more Liquidity... it's going to be, at least, attempted.... In this juxtaposed criminals mind.
Success is an altogether different thing as every Nations Stewards of "Money" appear to be in one huge race to devalue their currencies while taking a somewhat different tack towards interest rates.
Wages (aka monetary stuff jobs earn) on the hand appear to be picking up steam and heading directly towards the Far East.
Prices of "Stuff" has been "X'd" out of statistics, but the "Price" of SUPER intermediate resource, CRUDE OIL appears to be on the rise.
Supply & Demand or greedy Energy Matrix Participants... ?!?!?
Who knows... I don't. I do know Crude Oil is quickly becoming more expensive to produce given the scarcity of cheap oil at this level of demand.
That may soon change as it's becoming evident to the astute observer that this "Guns & Butter" thingy ain't working out all too well with rapidly escalating economies demanding ever more of a finite resource of immense importance to about EVERYTHING.
In fact, there's very little I can point to that does not involve crude oil in some form or another. No wonder those statistical goofballs X out food and energy. Heaven forbid the FACTS might seep in and actually shape reality.
Don't about the rest of you, but I suspect the Central Planners will continue to do whatever is necessary to keep this mess afloat until it's no longer able to do so... and to this observer, that means more of the same, for now.
It should put pressure on those criminal GOLD SHORTS.
It should cause a run on the "DOLLAR".
It should end in a horrific and deafening COLLAPSE.
Unfortunately, for speculators, profiting from it may prove to be pure folly.
I'll continue to purchase honest money, GOLD & SILVER as INSURANCE.
It may very well be all that survives. It might decline in FRN's for a period of time, but it does, represent the ultimate store of value in my opinion, regardless of what the FED carries it on the books, regardless of the repressive nature of Central Banks.
It's real, honest and the ultimate finger wave at the self-serving Elitist Powers that corrupted our world. I happen to believe these Statist, Global Bankers will fail, oddly enough, so did Mr. Magoo not that many decades ago.
*Thanks to Matt Johnson of THE THE for all lyrics in bold.