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8.7.2016 - Financial Intelligence Report Bookmark

Cramer Sees the Light?
 
200 Billion A Month

That’s the amount of QE being done by Central banks around the world. Chew on that for a minute, because I’m going to take you on a little tour in a minute. So, every 5 months, 1 Trillion dollars comes sloshing into the worlds markets. Some of it is used to buy things like Treasury bonds, Sovereign bonds, and even short term notes. But a lot of it is used for something much more “interesting.
But then they got even more aggressive. After seeing that buying up hundreds of billions worth of Government Security didn’t really have much effect on the economies, they got the bright idea to just go and buy up Corporate Debt. Now you really have to think about that one for a minute.

Corporate debt is when a company sells its own bonds. Let’s say they are in some financial struggles. They need some cash. Well, then they offer up a bond sale, and pay above normal market rates. So Joe Blow comes walking down the street, and they say ‘Hey Joe Blow! You’re an investor, right? Right. So how about buying up 50K or 100K dollars worth of our bonds. Uncle Sam’s only paying 0.5% but we’re willing to pay 5%” So, Joey Bloey buys 100K worth of this companies “debt”.

If the company survived and pays Joey’s coupon, all is well. But if after selling a few million in debt notes the company folds, then Joey’s going to be very lucky to just get out with a few cents on the dollar depending how the bankruptcy is arranged.

Well now the Central banks have decided that they should buy up Corporate bonds. That way their so called stimulus money is going right into the heart of the economy at the business level. Mario Draghi’s been pumping about 80 billion a month into that game. Just Thursday we learned that the Bank of England has decided to get into the Corporate bond buying game.

Okay, so what’s the problem? Well there’s lots of them. First off, when you’re trying to sell your corporate paper to Joey the investor, he’s going to scrutinize your company. He wants to know he’ll be paid back. When it’s a Government buying the paper, they don’t do any due diligence. They just have a number of bonds they’re prepared to buy each month. So they end up giving money to companies that are still going to go down the drain. So the Central bank ( and the taxpayers of that Nation) lose money.

Secondly, when CB’s are buying with abandon, company executives are going to start using a lot of that money for very “non company” things. Where they should be opening a new plant...they might instead buy a corporate jet. Where they could give their employees a raise, they might blow it on very questionable things. Worse is when they’ll use it to do stock buy backs, pushing their own stock price up maybe even in the face of declining earnings.

For years now I’ve been showing you all how various Central banks had been buying up US stocks. I really feel like many of you don’t believe that to be true, but I assure you it is. The Swiss national bank is the worst offender, but not the only offender. As we speak, the SWB holds 63 BILLION dollars worth of US stocks.

Here’s the link, you can see each and every stock they hold and how many. Some are real doozies too, like they hold 15 million Apple shares. 21 million Microsoft. 26 million GE.
 
Once again, the problem is price discovery. These guys aren’t using an analyst and going through earnings reports, etc. They just dive in and buy buy buy when their mandate tells them to. This is so destructive to the market I can’t stress it enough. There’s NO true price/value discovery when a bank can print up money and use that FAKE money to buy REAL stocks. What the hell is the real value of a stock if you have a buyer with endless pockets that doesn’t give a crap about how much he’s paying???

I don’t much like Jim Cramer. But the other day on CNBC he said some of the ironically funniest things I’ve heard in a long time. They were talking about how on earth can the market be so resilient with low volumes, saggy earnings and big investors moving money out of the markets? Then Jim says “It’s JAPAN!!” Like this was some big secret his analysts have discovered. First I was stunned, then I truly Laughed out loud. It was precious. Read this from his web site thestreet.com

On CNBC's "Mad Dash" segment: "Why is the market so strong? What is the bid underneath?"
That bid, he said, is Japan.
"It's just crazy," Cramer said, citing a Real Money research report by James Gentile.
The Government Investment Pension Fund of Japan has taken in some cases enormous stakes in individual U.S. companies. The list includes $2 billion worth of General Electric (GE) stock, $1.5 billion in Alphabet (GOOGL) , $100 million in Whirlpool (WHR) , $180 million in Eaton (ETN) and $150 million in Roper Technologies (ROP) .
Now, if you do these aggressively, you actually move these stocks," Cramer said, especially when the market has bouts of low trading volume. It seemed odd that some of these stocks have stayed afloat despite reporting so-so earnings, he added.
"This is concentrated buying by the government," he explained. Unlike the Federal Reserve, which opted to buy Treasury bonds, Japan has bought stocks -- individually and broadly -- as well as bonds and real estate.
Cramer questioned this tactic and said he was "astounded" to learn of it. The fund had to have been one of the biggest, if not the biggest, buyer of GE stock last month, he said
 
Did you catch that line...he’s ASTOUNDED to learn of this? Like it’s some big secret? Like he just unearthed the Holy Grail? Give me a break. I’ve been whining about this for years to anyone that would listen.

But this is why this market is still flirting with all time highs while the economy is in the toilet. 200 billion a MONTH in QE. The Swiss buying 63 billion in US stocks. The Japanese buying umpteen billions in US stocks. The market is BROKEN. Should we be at all time highs while we print GDP of 1%? Of course not. Has any TV analyst told you why we’re really up here? Like the Swiss, or the Japanese, or the 650 rate cuts since 2008, or the 200 billion in QE each MONTH? Nope, and they won’t. They’ll continue to tell you fantastic fairy tales about earnings and “growth in the second half”.

Earnings as a whole are down for 4 straight quarters, despite negative interest rates, zero interest rates, and more QE than the world has ever seen. Yet they continue to trot out the same old hacks to explain why we’re doing so well. I dream of the day that someone comes on and lays it all out for real. Forget earnings, forget employment and the rest of the made up crap they shovel. Just once I’d like to hear them say “The Central banks are buying up all the stocks, all the Corporate debts. The market is up because they’re printing money to do this, something the world has never seen” Just once...won’t happen.

This is why the other day I was saying that no one knows how this ends. NO ONE. We’ve never seen this before in mankind’s history. It will indeed end, and I think the end will be ugly. But how it develops? It’s a mystery. How far this madness can go before it ends? Mystery. How bad will things get when it blows up? Mystery.

But there’s one thing you have to ponder about all this and it is the important thing. If you’re in this market with your 401K and maybe 200K worth of trading money, if the market were to really implode, it would hurt you pretty badly. However... the Central banks couldn’t care less. They have NO skin in the game, they PRINTED their money. It’s fake, it’s monopoly money. The Swiss National bank could lose 90% of its 63 billion stash and still sleep like a baby. What do they care, it isn’t real money. They can just print some more.

That’s what makes this so dangerous. Just like they orchestrated between themselves to drive interest rates to 0, and stocks to the moon...they could conspire to pull the plug at any moment and plunge the world into chaos. Why? Because they’d be the people called on to “rebuild it” and make them fabulously wealthier. How sad. How sick. How real.
 
We’re in uncharted water folks. Being a long time sailor when I’m in unfamiliar waters I slow down to idle, watch my depth indicators, scan the water for surface patterns that suggest shoals, rocks, etc. Same thing in market land. I want to be more than just casually cautious, because who knows what lurks. Who knows what stops this madness. Who knows what day “something” big happens. Not me.
Tread lightly and stay aware. You’re living through an Historic time. Let’s hope we all get through it well.
 
The Market...

Guess what the market did on the day that they released the biggest “seasonal adjustment” to hit a jobs report in 10 years? Well we soared for 200 points and put in new all time highs. What else would we do? On Friday, according to our always honest bean counters at the Government, we added 255K jobs last month. Sure it topped the most bullish estimates. Sure it runs counter to the rise in layoffs and initial jobless claims. Sure just two months ago it gave a reading of 11K.

No one cares that if you take that adjustment away we’d only have 85K jobs. No one cares that the BLS “Birth/death” model added 112K jobs to the total. See, if you take away the B/D jobs ( which don’t exist) and you back out the adjustment...we LOST jobs. But no one cares. The only thing that matters is giving Obama a big fat market to cheer about for his legacy.

No one cares that tax withholding fell 1%. No one cares that Corporate taxes fell 12%. No one cares about anything any more. As I showed you above, just like the Democratic National Convention was rigged against Bernie, the stock market is rigged to be buoyant despite any and all ills of the economy.

So, what happens now? Do we just soar every day into November? As silly as it sounds, that COULD happen. Frankly we just don’t know. We are in such uncharted water that making predictions now is almost useless. As most of the “thinking” people have been suggesting for two months, we’re in uncharted territory and very dangerous water. We’ve moved considerably higher on the heels of the QE, the negative rates, the buying of stocks by Central banks and of course the fudging of the economic data. While it’s fun while it lasts, the question is... how long can it or will it last?

I don’t know. But from what I’m seeing, they are intent on driving this higher, no matter what. So should you be invested in this? That’s a great question and here’s my answer. With “trading” money, my opinion is yes. Lean into it, and get what you can. But for long term investments like 401K’s etc? That’s something you have to ponder for yourself.
The industry has made it very hard to move your 401K around. Way back in the 90’s I could literally “daytrade” our 401K. But the industry hated that and made more and more rules about how many adjustments you could make in a week, then month and now most have restrictions on how many times you can move in a year.   So while it is the gravy train as they’re pushing this market to nosebleed heights, if it really starts to crumble... can you get back out?

We went to cash in our 401K. People are asking me if I’m going to put it back into mutual funds. NOPE. Not a chance. While it is sad to see the market move higher and not have the 401K employed, going back into funds when we know the ugly reason why this market is doing what it’s doing...just doesn’t entice me. However I could be stupid, have this all wrong and the DOW goes to 25K, leaving me out of the fun. That’s fine, I took my slice from the 2008 bottom to the sideways chop of 2015.

We’re in the final chapter of “something”. Bernanke is pushing Japan to do perpetual bonds. Bonds that pay no interest and don’t mature. 14 Trillion dollars sits in accounts getting NEGATIVE interest rates. Never seen before in mankind. Student debt is crippling kids. The few jobs that are available are part time service jobs with no bennies. War is being fomented in the Asian and European theatres. You can almost feel the sense that “something is terribly wrong”. It sure is.

I simply use the madness in the market to scoop up more gold and silver. Each day that passes convinces me that I could never have enough. So, we’ll continue to use the stock market to make gains and then take some of the gains and buy “real money” with it. Our latest stock buy was MSFT, which broke out nicely for us on Friday.

Good luck out there folks. Enjoy this run, but please understand it for what it is... a manufactured run to make everyone believe all is well and that Obama fixed things. Nothing could be further from the truth. My biggest fear is that this doesn’t end with a gradual year’s long “sideways and down”, My fear is that some event hits ( think war, tactical nuke, derivative implosion, etc) and the market doesn’t walk down it literally crashes. Limit down one day, limit down the next, everyone trying to get out, circuits blowing up, limit down again and again.... That’s the fear. It’s rational, sane and almost probable.
Be wary.

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