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1.14.2015 Financial Intelligence Report Bookmark

What Choice?

I want to take a quick break from making any more 2015 predictions, so that we can talk about some “push back” I’ve been getting from a few folks. That’s GREAT because I love a good heated discussion, so let’s jump right in.  Right now my view for 2015 is that we get one small rate hike of just one quarter of one point and NO new QE.

Unless you’re one of the 1%, you know things aren’t so hot. The economy is indeed surviving, but it’s artificial. The term “zombie” comes to mind, as it is being kept artificially alive. They’ve kept it afloat by a multitude of tricks and gimmicks, and most people forget just how persuasive the manipulations have become.

What Choice?

I want to take a quick break from making any more 2015 predictions, so that we can talk about some “push back” I’ve been getting from a few folks. That’s GREAT because I love a good heated discussion, so let’s jump right in.  Right now my view for 2015 is that we get one small rate hike of just one quarter of one point and NO new QE.

Unless you’re one of the 1%, you know things aren’t so hot. The economy is indeed surviving, but it’s artificial. The term “zombie” comes to mind, as it is being kept artificially alive. They’ve kept it afloat by a multitude of tricks and gimmicks, and most people forget just how persuasive the manipulations have become.

So just for a very quick review, let’s just take note of a couple of the big ones. They revised the way manufacturing is defined. ( yes they did folks) They revised the way GDP is calculated, so they can add in more worthless items that make it look better. ( yes they did) The bailed out the banks, created numerous stimulus programs ( remember cash for clunkers?) and spent money on “new emerging business”  ( remember Solyndra?)

They withheld the “spending” that folks had to do to join Obama-Care from the fist quarter of 2014 and “injected” it in the 3rd quarter giving us a 5% GDP. You’d have to be a Drano snorting crack head to think the US economy grew at a 5% pace. Yet that’s what they told us and what stocks responded to.

They printed trillions upon trillions in QE programs which drove interest rates at the overnight window to zero. Central banks have been PROVEN to have bought at least 29 trillion worth of stock. The CMI has been proven to have a program that gives volume discounts to Central bankers for making futures trades.  They bought trillions worth of worthless mortgage debt from banks. They allowed REO ( real estate owned) to fade from balance sheets. They funneled 16 trillion to Europe, and when asked by Congress “where did the money go?” Bernanke said “I don’t know”.

They perverted Corporate accounting to the point its own mother wouldn’t recognize it. According to notables such as Blackrock, earnings have been inflated by 85% by using accounting principles that are, well… bogus.  Companies did so many buy backs that the S&P says that 95% of ALL profits went to buying back company stock. Between buy backs and dividends, companies spent almost a TRILLION dollars in 2014 inflating their own shares.

The five major banks in the US have north of 400 TRILLION in derivative exposure. CDS’s,MBS’s, RBS’s, CDO’s and the whole alphabet soup of exotic and esoteric financial games go hidden from the nightly news.  Shall I go on? No, I’ll stop I think you all get the picture. They’ve done every single thing they can think of to make the economy and the stock market look as good as it can look.  

Yet the economy is barely alive. We just learned that wages fell like a rock. We learned once again that part time 10 dollar an hour jobs dominate the employment reports. We learned again that almost 93 million people aren’t even in the work force. We’ve got record food stamp use, record visits to food pantries.

I’ve said a thousand times, Central bankers are evil criminal people. For all I know they could be Satan’s spawn, who knows. But one thing they “ain’t” is stupid. Considering that they’re behind the bulk of the manipulations to make things look better, they obviously know things aren’t good. Not good at all.

Now, the standard line of thinking is that “the Fed’s have no choice, they’re going to launch QE4, and never raise rates”.  Okay, so let’s go with that for a minute. Let’s suppose they launch QE 4, 5, 6, and 7. Will it solve the problems? No. No more than QE1, 2, the twist, and QE 3 did. The obvious question would be…then what’s the point? Exactly.

What is the point in keeping rates at zero for ever and doing QE to infinity? We’re 4 QE programs and 6 years into this madness already, and what’s it done for us? It has just barely kept us alive. No more, no less. Meanwhile our debts pile up.  

Now, I know that. You probably know that. The Fed’s know this. Any Wall Street analyst who isn’t comfortable lying for his paycheck knows this. The world knows this. The BRICS know this. China, Russia and anyone with a firing brain cell knows this.  

So the common answer is that they keep rates at zero, kick the can down the road with more QE and life goes on. But does it? Does it really? Are we watching half the world’s population leaning toward a Russia/Chinese/Brazil/Indian/South-Asian/Eur-Asian alliance because they’re so happy with the way things are going with the US led Reserve Currency? I think not. I think the world is desperate for a “reset”. A way to get away from the status quo. A way to conduct business in a real way, without printing fiat money at a whim, without artificially controlling interest rates.

Right now Japan is all in concerning printing money and monetizing anything they can get their hands on. The economic reports out of the area show businesses closing at the fastest rate in 20 years. Their “bazooka” style QE is ruining their country. Meanwhile here in the states, we tapered our QE to zero and hint toward hiking rates.

Draghi of European fame is in the sights now. Everyone wants and most expect some form of European Union QE program to begin, possibly being announced  later this month.  So let me ask you all a question… Japan’s full blown QE is going to be proven to be a failure. There’s no question, it’s already a failure but like most central banks, they figure there’s nothing else they can do. What will people say when it’s dead/gone/finished? What’s the view of QE going to be, when it’s proven there that it didn’t work?

What about Europe? While they don’t have a true QE program in place, you’d have to be infantile to think that they haven’t played QE style games over the past few years. Yet despite all the machinations, aren’t we hearing that Greece wasn’t fixed and in fact might default? We are. Isn’t Italy’s biggest bank back on the ropes? It is.

Now here’s the biggest question. We already have zero rates. Some in Europe have NEGATIVE rates. That hasn’t fixed things. QE didn’t fix the US, it’s being shown as a failure in Japan and if launched in Europe will fail there too. What happens then?  

There are two major reasons I’m bucking the consensus view folks. One is that I think the Fed’s ended QE because they knew Japan and then probably Europe would start their own programs, and we’d benefit from the “carry trades”. I also think they will try and hike rates a bit, because when Japan and Europe fail, they’ve got no “headroom” to work with. Even if rates were just 1% next year, they could “rush to the rescue “and cut rates back to zero if things got ugly.

The second view is decidedly more cloak and dagger. Yet it is no less real. The world is pushing to get rid of the US dollar as the global reserve. China and Russia want no part of it and the latest energy deal they did, the biggest energy deal ever, omits the US dollar. Rubles and Yuan only.  The Chinese have been very vocal about not liking the way the US abuses its privilege of Reserve Currency. They have wanted their currency to carry more global weight.

Well, the IMF will review the SDR basket weightings this September. China wants desperately to be included in the calculations for the SDR’s. Am I to believe the Fed’s don’t know this? Of course they do. IN fact, if indeed the Chinese get the Yuan listed as a component of the SDR universe, it is possible that THAT is the “event” the Fed’s could use as an excuse for why the economy went to hell?

Think about it for a minute folks.

My view is that the Fed’s know the current system is futile. The Debts are too big, the economy too damaged, the system too broken. I don’t think they want to continue to kick the can any more, because all they’re doing is making the final “crack up-boom” even bigger and WHEN it comes, they’re going to look mighty impotent. What answer can you give as a Fed head, when you do another 3 rounds of QE and still the economy grinds to a depressionary halt? None. Why would we ever want a Central bank? We wouldn’t. They know this and they’re desperate.  A Central bankers fist objective is not the economy, not jobs, not growth. It is staying in POWER.

If they continue to kick the can, which is what I think we can agree they’ve done for 6 years, and still things stink…do they really just keep on kicking it? Do they kick it even bigger with larger sums of printed money? Sounds desperate, no? Yes.

This is why I’m leaning the other direction. I don’t think they’re going to follow the standard plot any more. When your moves are so well known that any high school kid can confidently say “the Fed’s will rush out with more QE, they have to”… that seems a bit too pat for me. When shoeshine boys and taxi drivers have the Fed’s pegged that well, maybe it’s time for the Fed’s to change gears some.

I think the Fed’s are in a box they don’t want to be in. They don’t want to do QE or keep rates at zero because they know it isn’t working and doing more of something that doesn’t work is abject stupidity. I think they’re desperate for some external event that they can then blame our woes on. It could be war, such as an outbreak in Ukraine. It could be a dirty nuke. A false flag attack on our homeland. It could even be something such as the Chinese getting included in the SDR basket and firing up a SWIFT monetary transaction platform with Russia and others that don’t want exposure to the US and it’s rules.

Let’s suppose that the Russian/Chinese development of their own SWIFT platform becomes popular ( and boy it sure could). Don’t forget, the US forces anyone that doesn’t play their way to bow down. If you continue to trade with Russia, they ban you. If you want your banking system private, but the US thinks you’ve got US citizens banking there, they want the records. It would be very easy to see a world that runs to the Russians/Chinese and away from under the thumb of the US.

Would that be big enough to cause the Fed’s to say “hey folks it wasn’t us! We had the economy doing really well, but these foreign sanctions and tax witch hunts have caused us to lose preeminence in the world”. It could. And the Fed’s could slink away, saying they saved the US and it was all these other issues that damaged us, none of which they’ll take credit for.

If you read the history of the US and really understand what was happening, you see that the European banking cartel worked doggedly to make absolutely sure this nation was under the thumb of a “central bank”. They lost that title a few times and worked even harder to get it back. Since 1913 they’ve enjoyed the role and you can bet that they will never want to give that back. As far as I’m concerned there is NOTHING so low that they wouldn’t stoop to it, to make sure they remain in power. If that’s creating a war somewhere, well they’ve done that before in history. If it’s making sure some event takes place that they can blame our ills on, you can bet that event is coming.

So to all of you who say “of course the Fed’s are going to do more QE” please, just consider what I’m saying. They might. Nothing is off the table. But I think they’ve played that hand, and see it’s crapped out. I think it’s time for them to play a different ploy, and it will probably be slimy. That’s just my thoughts.

The Market…

Volatility with a capital V. For the past month, the moves up and down have been both enormous, and wicked in speed. The past 3 trading days have been no different. We’ve seen almost 500 point intra-day swings up and down.

The first question is…why? Why all the chop?  Well, like most things market, there’s not just one issue. There’s many of them, so lets just hit on a few…

One is that folks that have been riding this gravy train of “up” markets,  have been taking money off the table and locking in some profits. So you get a bit of selling there. Then of course it was the question over whether the European courts would actually allow some form of QE to be rendered in the union. Then we have the push/pull between those that think the economy is firing on all cylinders, versus those who look at the economic reports and realize we’re sinking. Then you have the yes/no debate about the Fed and interest rates. Oh and don’t forget the central banks themselves, who manipulate the market at a whim each time they see weakness, whether by jawboning it higher, or actually buying stocks.

All in all, there’s a multitude of reasons why we’re getting this whipsaw action. The fact that it is here isn’t terribly important, what is important however is what it COULD mean to us as investors. In loose terms, when a market gets wickedly volatile it generally means that the prevailing trend that was in place is coming to an end. So, what was the prevailing trend for the last several years?  Up. Up was the trend.

So, is all this insane chop indicative of an impending market drop? Actually it could be folks. If you look around, there’s very little reason for the market to continue higher. Just today we saw that JP Morgan missed estimates on the top and bottom line, AND they had paid yet another billion dollars in legal fees to fend off accusations of currency manipulation. We saw that Retail sales, which everyone thought was going to be stellar, came in WELL below estimates. Oil is still weak and getting weaker and the layoffs are starting. Even in Canada, Suncor has just announced 1K layoffs.

But there’s always that one wild card that we cannot ignore. Yes folks there is a Government sanctioned “plunge protection team” that actually buys futures and stocks when things get too ugly too fast.  They can and have reversed outright selling plunges in the past, and probably will again. So we always have to consider them.

So today we opened poor, and then fell a whopping 349 points. Then in the last hour and change all hell broke loose. Because of options expiration, oil started spiking higher, literally gaining 6% in a matter of 45 minutes. That got the indexes fired up and sure enough, we pared over 160 of those lost points. We ended down about 188 points.

Yes that’s volatility. Now we have to try and figure out if this is going to bounce, or is there more downside to come? Well, lets look at the technicals. The January 6-7 lows saw an intra day low of 17.262. Today we hit a low of 17,264 and then put in our bounce. So you could call that a double bottom test and it was successful.  So we will consider that a pretty solid bottom, meaning that as long as the DOW stays over that, we “should” see them try and perk us up some. However, if that 17,262 fails, then I’d feel comfortable suggesting we’ll visit the December lows at 17065.

Here’s the bottom line folks. Yesterday was what we call an “outside” day, and they are technically nasty. They usually spell more downside and we got that today. But today we seem to have bounced off a short term bottom, and that feels pretty fair. So if I was simply betting a couple bucks I’d say we will probably see the market make some green tomorrow.  That does NOT however mean we’re out of the woods in total.  We’re now in earnings season, which will whip us around, and it is still to be determined how big of a QE program the Europeans launch.

If you’re a trader and you’re nimble, you might pick off some quick upside gains. But if you’re a true investor that needs to hold things for a while, I’m not certain at all that I’d get too brave just yet.  The chop will continue.

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