Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Overpriced Assets Reaching Their Peak

Stock-Markets / Financial Markets 2013 Feb 25, 2013 - 06:27 PM GMT

By: Andrew_McKillop

Stock-Markets

START WITH SOVEREIGN DEBT
Leading financial and economic statistics for major nations tell us all we need to know: zerohedge.com/sites/default/files/images/user3303/imageroot/2013/01/20130201_Macro.jpg

As a direct result there is no way QE or quantitative easing can end, despite anything that might have been said, implied or read into the minutes from the most recent 30 January meeting of the US Federal Reserve’s Open Market Committee. federalreserve.gov/newsevents/press/monetary/20130130a.htm


Acting with pr7edictable and even amusing delayed response, financial market operators - the word 'operators' having all its meanings in this case - sold off stocks, slashed at gold prices, and even toyed with talking down oil prices, for a few days, well after the event. By this week, starting 25 February, they were well on their way to overcoming their supposed attack of "nervousness", and they even talked gold up a little from its recent doldrums.

The nervousness was adduced by market commentators to arise from official notes to the US FOMC meeting, casting "potential or possible doubt" on the US Federal Reserve holding true and firm to its open-ended $85 billion-a-month debt monetization program, called ‘quantitative easing’. Some of the most nervous and least realistic believed out loud that "inflationary risks" could be created not by maintaining the open-ended buying of mostly worthless "debt securities and instruments" by the Fed, but by abandoning it!

TORTURED LOGIC, TWISTED MARKETS
Inflationary risk was not on the FOMC's dinner table menu; restoring inflation was and is. An extract from the Notes to the meeting tells us what we need to know:  "To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month".

Inflation needs to be at a "consistent rate", which we can translate as a "persistent rate". Without it, things do not look too good, in fact they look even worse than they are already, in Bernanke Vision, shared by Central Bank governors of all major nations, and recently with dramatic intensity by Japan's bank governor. Pretending this money printing is "not without costs and risks" is a thing to murmur while stirring the coffee, after the dessert and the floorshow. A really nice aside, polite also.

The main problem is dramatically simple: how can we offload these assets in the future? And to who?

Above all, the really fundamental reason why QE cannot ever stop, the slightest trace of action to start liquidating these "comfort and confidence assets" will create market panic. At that time, interest rates will have to rise. This will be Armageddon. Between times the absence of inflation, even "troubling signs of deflation" provide a radically precious and possibly unexpected prop to QE.

The game of "maintaining confidence", which is the only role of central banks, has massively slopped over and outside the brimming cup of central bank money manipulation. All financial markets, of every kind are now affected: stocks, gold, oil, metals, soft commodities, even the price of palm oil or rubber. Apart from sovereign debt, the very close linked major market that is obligatorily manipulated to "maintain confidence" is the foreign exchange currency market. Operators, here, can and will take ever more reckless bets due to QE and the ideology, or mentality that runs alongside it.

NO RISK, UNLIMITED RISK
The quickest look at key favoured markets for increasingly naked and brutal manipulation, including oil and gold, can be explained, by some, by market operators in these markets "being unable to price risk". They only have to bet that oil prices will rise and gold prices will fall. Where the betting is run by the Banksters, in any "asset space", including sovereign debt as well as oil or gold, and stocks, they know that risk no longer exists. If they fail - they do not fail. They are TBTF. Since 2008, they have a permanent armlock round the neck of governments and their central banks. Against this backdrop, market participants are not interested in pricing risk. They have a permanent green light to pump up the nominal value of anything, as long as its tradable, possibly even including gold.

Any talk about an "instant stop" to QE would, just as instantly, reveal the woeful and system-wide distortion and unreality of prices for almost all and any assets. The near obligation, not just probability  of central banks raising interest rates, if they stopped QE, would be the ultimate Death Cross for the economy. Their tinkering with "stealth devaluation" of all major moneys would spiral into runaway and real Currency Wars. All the talk about this being High Keynes and the Guided Economy is as laughable as it is unreal: like a killer drone guided by a defective cellphone with an idiot video game playing.

Just as laughable, supposed claims of instant fixes and silver bullet solutions including an instant stop to QE would be an atom bomb for the global economy, today. These nice asides to a central bankers' dinner party are at least 5 years out of date.

IN GOOD COMPANY, IN TERRIBLE COMPANY
As we know Everybody is Doing It. The US Fed has "created" about $1.9 trillion, the ECB has created about $1.4 trillion, and Japan's BOJ has created nearly $1 trillion in new ‘reserves’ since the now mythologized, supposed key event of the Lehman Bros bank collapse. Certainly in the case of Europe and Japan, centralbankers will have to increase the rate of growth of their 'reserve' creation, due to the "underperforming" real economy.

Central bankers, more than ever, have to believe they are defending national moneys, therefore defending the economy, and that they defend the general public which in their bankster view is as helpless as it is witless. As we know, along with governments, the central banks are destroying national moneys, as well as the economy, even if the general public stays witless. The Bad Company of the bankers is of course still a selected company, but the circle is now wide: all market operators of any size believe they can and do influence the central bankers. And vice versa.

The one-way nature of central banker "management" of the economy, through money printing, has since 2008 either created new, or recreated old asset bubbles but with added venom. This is a problem of their own bureaucratic making, based on faith and fantasy, called received wisdom. It is divorced from the real economy and the real world. Brave talk by politicians, sometimes even by the central bankers themselves, that "deleveraging of debt" is taking place albeit slowly, completely ignores the basic fact of private banks, large corporations, and above all the State being totally dependent on nearly-zero interest rates: cheap credit.

From the List of Shame table at the start of this article (Fiscal balances and economic performance) the truly amazing or fantastic situation of Japan stands out like a sore thumb on a heavily mauled hand. Japan was the first country forced into zero-interest policy, and the first to run ‘quantitative easing’ over 20 years ago, but has been upstaged on that score since 2008 by several Western central banks. The LDP government of Shinzo Abe takes an extreme political approach to the nation's central bank, from the choice of its new governor to all public statements coming out of the BOJ. This certainly shows which way the wind is blowing for central bankers.

The headwinds are blowing, and could switch to gale force overnight. Central bankers are now full-time players in the sombre farce of global economic meltdown by policy decision. To some perhaps, this is make-or-break, a time for courage, and other reassuring slogans but what we know is that central bankers almost never, ever pay the price of their mistakes, and never change course until too late.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife