Fix (n- colloqu) relief of addictive wIthdrawal, usually by drug injection

Fix (vt – colloqu) cheat, as in ‘put in a fix’

Fix (vt) solve problem


The final farewell end and absolutely last performance of QE….soon.

You’d think the above chart would be everywhere, but US Slog contact Butch sent it to me last night, and it isn’t one I’ve seen before. It couldn’t be simpler in displaying the overwhelming result of the US Federal Reserve using QE: the creation of a ludicrous stock market bubble.

The S&P 500 (like all stock markets now) is an investment forum in which the ‘squeezed middle’ of the western world (from 45-70% depending on country) lack the skills required to benefit from it, and have little in the way of trustworthy information by which to judge when the bubble will burst. This reality has been exacerbated in recent years by everything from dark liquidity pools to speed of light and algorythmic trading. The small investor might benefit inidrectly via pension or assurance investments held on his or her behalf, but the real number of people who do is frighteningly small: 42% of upmarket British workers, for example, have no pension arrangements at all.

I’m not a great fan of the capital letter’s use for emphasis, but in the next paragraph I fancy it is warranted.

The irrefutable bottom line on this one is that both the US Federal Reserve, the UK Bank of England (and upcoming, the European Central Bank) are taking YOUR money and WIPING OUT GREEDY, DUMB TRADES made by the bankers who YOU ALREADY BAILED OUT to the tune of $23 trillion around the world anyway. But instead of using the money to INVEST IN RESEARCH, HIRE MORE STAFF OR LEND TO SMALL BUSINESS, what the banks and major multinationals are doing is adding the newly freed-up money TO THEIR OWN BOTTOM LINES such that the dividends declared REWARD FAILURE WITH MORE PROFIT and the stock price goes up to make the élite f**kwits EVEN RICHER THAN THEY WERE BEFORE by simply putting EVEN MORE MONEY for themselves and clients into the stock markets knowing THEY CAN’T LOSE because (a) the market IS FIXED and (b) they’re using YOUR MONEY NOT THEIRS.

You thought this was bad news? Try this: as I posted last week, the credit available to put some foundations beneath the stock price hikes (in terms of real sales and growth) is shrinking. What we have here is an entire buying group of addicts hooked on crack cocaine, but the pusher who flooded the market with cheap sh*t is going bust. Sadly, what we also have here is hard-headed bankers saying they won’t sell crack to a market where they can’t see any real return. I repeat:

‘As Gordon T Long points out in a recent article, ‘The desire to lend by the banks is decidedly muted as demonstrated by the fact they have $2trillion of access reserves at the Federal Reserve. They can’t find the loans that have satisfactory lending profiles….It isn’t that the banks don’t want to lend, the growth and opportunities are not seen to be there. Simply put, there is too much mispricing, excessive mal-investment and distorted allocation of capital.’

So Ben Berwanker and the Fed not only f**ked you, they also f**ked the market for you, and now they’ve f**ked the chance for normal credit to take over….but the Fed can’t step in again because the public purse can’t take any more (allegedly)…..and so we’re all f**ked.

No, sorry – that’s an exaggeration: we’re all f**ked except the greedy f**kitted 3% who started this mess, lobbied for the continuation of this mess for their own benefit, and will be out of the mess like Jack Flash when they decide… and not before. So we’re all f**ked, but they’ll be even more obscenely f**king rich than they were before.

I feel better after that.

This, David Cameron, is not ‘taking profit’ – it’s taking the piss. It is profiteering. It is scamming naive investors. It is cheating the citizens. It is starving real capitalism for the 97% to enrich the 3%. It is strangling welfare programmes. It is socio-cultural crime on a staggering scale. And it is storing up big, big trouble.

Those of us who are awake, of course, already know this: so why reiterate it again now?

For many reasons actually – but here’s one to start off the proceedings: Janet Yellen (the new Fed Trezz) may talk a good game about QEternity, but I understand her bullishness has been diluted by various things…and people….as she heads into The Job Nobody Wants. Maybe this chart (among many others) has caught her eye:

RydexbottomIt looks a little like the stock market v credit availability chart, in that there is a growing divergence between the S&P500 and Rydex. At the moment we are seeing very low asset levels in the Rydex Government Money Market Fund (RYFXX). And unlike the last two dips, this time there is no anomalous explanation for it.

Thus, investors who would keep their money domiciled at Rydex MMF in more stable times are pulling out of the safety of cash in order to put that money to work in the various other funds at Rydex. Historically, low Money Market Fund asset values have been associated with the bullish sentiment extremes of important market tops.

You can see that, at the start of QE, the market/Rydex match was near exact. Now it is at an extreme of divergence.

The Rydex MMF starts the current dip at the start of July this year. There’s an unsuccessful rally, but then credit supply falloff starts in October, and drags the S&P down with it. These are, to me anyway, disturbing signs that the smart money may be ready to exit.

Which timescale and why?

We’re heading towards that two-week period now where a combination of gift-buying panic, holiday plans and liquid lunches will take many eyes off many balls, and reduce volumes in most markets. But we’re not quite there yet: there is still next week, and still a lot of nervous taper angst out there.

All it will take is a big enough chunk of savvy selling (which most of us won’t see until too late), or a tipping-point bulletin from Europe, or a chance remark by the Fed….or all of those. And maybe others still….like interest rate hints.

But whether or not such triggers have any effect before the great anti-materialist’s birth is celebrated by an orgy of materialism, the time is almost nigh come what may. In recent weeks, stocks have continued to roar to new all-time highs. In many cases, rises massively exceed real expectations for earnings growth. “I still see end Q4 2013, through to end Q1 2014, as the window in which we see a significant risk-on top before giving way, over the last three quarters of 2014 and through 2015, to what could be a 25% to 50% sell-off in global stock markets,” warned Nomura’s Bob Janjuah in a recent note to clients.

Personally I am also concerned about the number of “bollocks” stocks there are in the top twenty. They include things like Facebook and Ebay which – although they look like excellent medium term bets – still struggle to convince me – given in many cases an absence of real profit – that the long term business outlook for them is that great…or that the short-term prognosis isn’t that they’ll be the first ones to take the hit. Even Google I find madly overpriced, given the number of ‘intelligent search’ threats I believe it may face.

Spookily, I have mentioned in previous posts that there are a great many political moves in play at the moment across the world….all of which seem related to that Bob Janjuah timescale.

1. The UK Coalition has a number of issues and scandals in the air, both political, fiscal and economic. I have puzzled before about how the non-recovery, the fiscal fudge, the BBC DJ fitups and the Newscorp hacking trial all run out of road around about Easter 2014.

2. The same is true of the eurozone. Greece’s debt relief has been blithely cut off, and there won’t be any help until May at the earliest. Further, it’s very likely that Draghi’s narrowing options – and the growing recovery of German power by going around the ECB – mean push will come to shove on fiscal union at about that time. Yet any sense of urgency in Brussels about this seems to me entirely absent – while Berlin is worryingly silent.

3. You may have noticed that Hillary Clinton has been giving more smiles and encouragement when asked about running in 2016. Also hubby’s profile has been rising again. If she is to succeed a two-term Democrat President, then campaigning in a fairly overt way will start for her mid 2014….because she will have to give herself maximum time for clear water to be visible between her and the Black Dude. But equally if not more important, a sound American well-connected source said to me ten days ago, “Hillary wants to associate Obama with Republican economics, and go hard against neoliberalism after things go belly up. She reckons this’ll be around summer 2014.”

4. Eurozone banks expected to improve liquidity to capital/lending ratios in the run-up to the ECB’s projected stress tests by taking more provisions have underperformed, surprise surprise: ratios rose a mere 3% on average in Qs 1-3 this year, but they have yet to take extra provisions against doubtful loans to show they have put the financial crisis behind them in time for a critical review by regulators.

Next year’s Asset Quality Review (AQR) stress test by the European Central Bank will judge whether the banks have done enough, but the latest feedback I have (via Madrid) is that the test will now be over two stages….the first of which will be “very light touch”. Then a more strict round is to begin…..after May next year.

5. There are plenty of negative (but heavyweight opinions) around suggesting that the preceding points fit will with their soothsaying. Dutch Rabobank’s forecast observes, ‘…both the political impasse in the US and the ‘tapering’ of the Fed’s extremely accommodative monetary policy would appear to involve greater uncertainties than the situation at the time of President Bush senior and the then Fed Chairman Alan Greenspan. As regards European integration, the situation today features scepticism about the European project and uncertainty regarding the progress of the still ongoing crisis…’

Neil Irwin at the Washington Post opines, ‘…to simply chalk up the disappointing results, year after year, as bad luck misses something more fundamental….the question is whether the latest round of forecasts, for stronger growth in 2014, are based on something more thoughtful than just a hope that eventually the headwinds will end…’

To answer Irwin’s question, my own view would be “No, they aren’t”. This is particularly highlighted by the unintentionally hilarious remarks of Wang Jun, a senior economist at the China Centre for International Economic Exchanges (CCIEE): “If we cut the growth target, there could be some negative impact on investor confidence and raise the risk of further slowdown,” he observed.

Hmm. The Beijing government now says it may not announce any growth targets before….next March at the earliest.

Not a conspiracy theory, just common observations

What I’m pointing out here is circumstantial evidence near to the point of qualifying as prima facie: that is, while they can’t or won’t share obvious inevitabilities, vulnerabilities and instabilities with their citizens, between them there does appear to be a common feeling among our Establishments that, at any time from Easter 2014 onwards, all bets may be so off as to make all other considerations pale into insignificance. Or put another way, things we use currently to stick it to the pols will become both irrelevant and forgotten.

This might also explain the growing evidence of government preparedness for various levels of unpleasantness.

One final point before I start Sunday lunch prep: if such event(s) are expected, then the current gold bottom may not be a false one after all: for whatever bollocks central bankers and finance ministers come out with to “explain” the devaluation of gold, the money that will be pulled out of the markets and banks has to go somewhere….and the mining outlook is for less extraction, not more.

There’s plenty to think about at the moment. But the foregoing represents where my mind is headed.

Yesterday at The Slog: Hang a Mandarin, you know it makes sense