'Bond Bubble' Explosion now a Fait Accompli

Bernanke is right now caught in an economic conundrum of his own making and he doesn’t want any of the stupid, befuddled Sheeple to   know it. 

What follows is what he said today and what we believe he should have said. 

 

Bernanke Says Fed May Decide Not to Sell Securities

By Caroline Salas Gage & Joshua Zumbrun - Feb 27, 2013 4:24 PM ET

Federal Reserve Chairman Ben S. Bernanke said the central bank may decide to hold bonds on its $3.1 trillion balance sheet to maturity (1) as part of a review of its strategy for an exit from record monetary easing.

Bernanke told lawmakers in Washington today that he expects to revisit “sometime soon” an exit plan that policy makers outlined in June 2011 (2).

Federal Reserve Chairman Ben S. Bernanke is the third policy maker in the last week to voice support for altering the central bank’s exit strategy to delay or eliminate asset sales.

Under that plan, the Fed would cease reinvesting some or all principal payments from its securities, revise its interest- rate outlook, raise the federal funds rate and then start selling housing debt to eliminate it from the central bank’s portfolio in three to five years.

… 

How Long

Bernanke echoed that view today. “One issue is how long to hold the securities and whether to use that as a substitute, an alternative to asset purchases,” he said. “That’s something worth discussing.”

The Fed is purchasing $85 billion of Treasury and mortgage- backed securities a month in an effort to (3) spur the economy and reduce a jobless rate that stood at 7.9 percent in January.

…  Bernanke said today the central bank’s easing policies are helping to improve demand for homes and cars (4) by lowering long- term interest rates.

Bernanke ‘Confident’

The Fed chairman said he’s “pretty confident” that the “basic outline” of the exit strategy policy makers agreed upon would “still be in force.”

If the Fed doesn’t sell any securities, “it doesn’t mean that our balance sheet is going to be large for many years,” he said. “It just would be maybe an extra year. That’s all it would take to get back down to a more normal size.” …”

Here follows what we believe (thus there are no quotation marks to indicate actual quotes) Bernanke should have said:

#1 Federal Reserve Chairman Ben S. Bernanke said the central bank may decide to hold bonds on its $3.1 trillion balance sheet to maturity because no one in the financial markets is capable or stupid enough to buy up all that junk debt.  So, the Fed will be forced to eat it.

#2 Bernanke told lawmakers in Washington today that he expects to revisit “sometime soon” an exit plan because he has no idea how in the H_ll the Fed can get out of this mess.

#3 The Fed is purchasing $85 billion of Treasury and mortgage- backed securities a month in an effort to save all the banks from declaring BANKRUPTCY.

#4 Bernanke said today the central bank’s easing policies are totally distorting demand for homes and cars by providing ‘Free Money’ to the banks so that they can provide loans to anyone that can “Fog a Mirror,” just as they did for housing back in 2002 through 2005, which insane policy led to the last economic disaster and the credit-Crisis of 2007/08.   

#2 KNOWING THE TRUTH WILL SAVE YOUR A_S!!

Note to this Blog from last year:  We have now set the ultimate price target for this totally insane and unjustified rally in the Dow Jones for 18,500 in the Spring to Fall of 2015.

Also, this rally is very likely to end in October the 13th to 27th of that year.  

And all the other equity markets of the entire world will follow this 'March to the Death,' which will finally and utterly shear the 'Sheeple' of all the earth of what little wealth (and sanity) they have left to them!

 

Wednesday, May 2, 2012

Knowing The Truth Will Save Your A__!

As I have noted before:

Every once in a great while the MSM gets it right and reports the truth.  The following is a prime example.  I need add NOTHING to this very fine and accurate piece of journalism.

Are you and your company ready for the Financial Debacle of the century that will follow the “Great Deception of 2012” when all the ‘Sheeple’ will have finally been persuaded to put their last bits of money into the world’s stock markets and then be entirely fleeced - once again - with the Greatest Stock Market Crash ever in the Winter of 2014 from the roughly 16,500 level on the DOW?

Incidentally, I am just about to reset our projected insane target level on the DOW to 18,000.  I think that will be MADE necessary by the fact that the "Powers That BE" (PTB) are having a VERY difficult time moving the 'Sheeple' back into Stocks.  And the 'Sheeple' must be 'All In' (just like Real Estate in 2006) the insanely overpriced PAPER of the stock markets before the PTB can 'PULL the Curtain" on this 'Monkey Show,' just as they did three times in the late 60's and 72 and 1987 and 2001!

Doubt us?  

Well, just watch the rhetoric rise to fever pitch by the 'talking heads' and 'professional pitchmen' of the Devil on the country's FV's (Funny Visions) over this coming year and you WILL see our prediction come entirely true! 

ON that I will take bets from anybody at very nearly any odds!

Finally, the "Age of Austerity" just briefly mentioned in this article is upon our doorstep, as I did cover in  some detail on our website Home pages and New Normal pages and Econometrics pages at www.polestarcomm.com and in MUCH greater details in our Market Review of 2011 and our Quarterly Reviews since then and in a cursory fashion in these Blogs.

IMO - you and your company should be preparing NOW for these things, otherwise, your company is sure to join the long list of those companies (some are listed at the bottom of our home page) that were destroyed in the FIRST wave of the Super-Tsunami "Kondratieff" Long-Wave that did strike this country and the entire world in 2007 and 2008.

And remember, the SECOND wave of the Super-Tsunami "Kondratieff" Long-Wave will be three times as horrific and financially catastrophic as the first wave, which increased intensity is merely a factor of wave harmonics, but will be credited to the $700,000,000,000,000 Derivatives Issue by the 'talking heads'  and 'professional pundits' of the Devil in late 2014 and 2015.

Yale’s Shiller: World in a 'Late Great Depression'

www.moneynews.com; Monday, 30 Apr 2012 07:50 AM; By Forrest Jones

“ The global economy is mired in a "late Great Depression" despite central bank stimulus policies, says Yale economist and author Robert Shiller.

"Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now,” Shiller tells CNBC.

The Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have propped up their respective economies via liquidity injections known as quantitative easing, tools designed to spur recovery but dubbed by critics as printing money out of thin air.

He says the world is in a “new age of austerity.”

Critics say such monetary tools don't improve fundamental economic problems of too much debt and too little growth, although Shiller points out that the jury is still out whether fiscal measures taken to tackle those problems such as budget cuts and tax hikes in Europe especially are having a desired effect.

"Quantitative easing is not as prominent a policy as austerity ... the effect of austerity is not crystal clear because it depends how people react to it," says Shiller, who accurately called the tech bust of the early 2000s and the housing bust later that decade.

"It might help, but I don’t know if it's going to overwhelm the general mood of austerity, which is affecting the housing market."

….  "Fifty years ago, there wasn’t this talk of housing as an investment. It was a zeitgeist of the early 2000s, and it has gradually gone."

The housing sector appears to be bouncing along a bottom….

… Housing prices will drop by a further 20 percent as the downturn gripping the United States deepens, leading economist Gary Shilling says.

Writing in the Christian Science Monitor, Shilling said more and more people are looking to rent as homeownership becomes increasingly rare.

“Housing activity remains depressed, with the only life coming from the multifamily component, which is being driven by the zeal for rental apartments as homeownership falls,” he wrote.

“Homeowners are losing their abodes to foreclosures; many can’t meet stringent mortgage lending standards; some worry about homeownership responsibilities in the face of job uncertainty; and many people have no desire to buy an asset that continues to fall in price.

“I am looking for a further 20 percent slide in housing prices.”

Read more: Yale’s Shiller: World in a 'Late Great Depression'

From Dogs to Pigs to Cows to ?

Well, let’s see:  the lexicon of ‘Colorful Financial Metaphors’ is now growing, yet again:

The Eisenhower corrections of the 50’s, yielded ‘Dogs’ for crappy stocks, 

The three Great Stock Market Crashes from the 1000 level, culminating with the Crash of 72-74, so scared the sh_t out of the Sheeple that 'Dogs’ was forever adopted in the common vernacular,

The Internet Bubble of 1997-2001 yielded, ‘Pigs’ and “Slap some lipstick on that Pig,”

Now in the following article, we learn that the Great Housing Bubble has yielded ‘Cows’ as a metaphor for stupidly blind financial analysts who were supposedly grading the credit worthiness of the ‘Junk’ Mortgage Bonds.  

Now, I ask what?

What new, nifty and colorful metaphors will this entirely phony Stock Market Rally be remembered for?

By the by, please remember: that we project that this completely PHONY Rally that began with the Great Deception of 2012 will ABSOLUTELY explode with a massively deceptive move to Dow Jones 18,500 in roughly the summer of 2015, only to be followed with the ‘Mother of all Stock Market Crashes!!' 

To see why this will be so, read all our Blogs of late 2011 and early 2012 about the Great Deception of 2012, which occurred right on schedule, we might add!

S&P Analyst Joked of Bringing Down the House Before Crash

By David McLaughlin - Feb 5, 2013 4:54 PM ET

Standard & Poor’s employees joked about the company’s willingness to rate deals “structured by cows” and sang and danced to a mock song inspired by “Burning Down the House” before the 2008 global financial collapse, according to a U.S. government lawsuit.
Two S&P analysts in April 2007 discussed the company’s model for collateralized debt obligations, with one messaging that a deal was “ridiculous” and that S&P “should not be rating it,” according to the complaint filed yesterday in federal court in Los Angeles.

Feb. 5 (Bloomberg) -- Floyd Abrams, a partner at Cahill Gordon & Reindel LLP, talks about a U.S. Justice Department lawsuit against McGraw-Hill Cos. and its Standard & Poor’s unit. The government alleges that S&P knowingly understated the credit risks of bonds and derivatives that were central to the worst financial crisis since the Great Depression. Abrams is an attorney representing S&P in the lawsuit. He speaks with Sara Eisen on Bloomberg Television's "Lunch Money." (Source: Bloomberg)

“We rate every deal,” the other replied, prosecutors said. “It could be structured by cows and we would rate it.”
The analysts’ messages are among internal communications cited in the Justice Department’s complaint against S&P and its parent, New York-based McGraw-Hill Cos.
The U.S. claims S&P, driven by a desire to increase revenue and market share, defrauded investors as it issued ratings on mortgage products while ignoring market risks. It rated more than $2.8 trillion of residential mortgage-backed securities and about $1.2 trillion of collateralized-debt obligations from September 2004 to October 2007, the government said.
A 2008 investigation into credit rating companies by the U.S. Securities and Exchange Commission found that that the firms improperly managed conflicts and weighed the risk of losing market share based on their ratings.

Ratings Report

The report on Moody’s Investors Service, S&P and Fitch Ratings cited the discussion about the deal structured by “cows” and quoted an analyst who wrote in an e-mail: “Let’s hope we are all wealthy and retired by the time this house of cards falters.”
According to the U.S. lawsuit, S&P in 2004 was considering a process for changing its rating criteria and reached out to investors and issuers of mortgage securities for their feedback. One executive questioned this practice, saying, “[W]e NEVER poll them as to content or acceptability!”
Employees meanwhile were raising concerns about losing deals to competitors, according to the complaint. One analyst in May 2004 wrote that the company was losing a “huge” deal to a competitor because S&P was more conservative than others, the government said.
“This is so significant that it could have an impact on future deals,” the analyst wrote, according to the complaint. “There’s no way we can get back on this one, but we need to address this now in preparation for future deals.”

Volume, Standards

In 2007, one CDO analyst wrote to a former co-worker: “Does company care about deal volume or sound credit standards?”
E-mails and text messages can give prosecutors insight into the “unvarnished perspective” of company insiders and help them win trials because they’re easier for jurors to understand than more formal documents, said Robert Mintz, a partner at McCarter & English.
“They tend to give jurors a flavor for the general atmosphere inside a company, and that in connection with other documents can often be quite damning,” said Mintz, a former federal prosecutor in New Jersey.
S&P said in a statement that the government’s lawsuit is “meritless” and that at all times the company’s ratings “reflected our current best judgments” about mortgage securities and CDOs.
“Unfortunately, S&P, like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected,” the company said.

‘Cherry-Picked’

The reference to a deal “structured by cows” had “nothing to do with RMBS or CDO ratings or any S&P model,” it said, contradicting the complaint. RMBS stands for residential mortgage-backed securities.
“The e-mail excerpts cherry-picked by DOJ have been taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business,” it said.
Beginning in the fall of 2006 and continuing to about the spring of 2007, one executive regularly expressed frustration to colleagues that she was prevented by other executives from downgrading ratings of subprime mortgage securities because of concern that the company’s business would be affected, the government said.
“This market is a wildly spinning top which is going to end badly,” said another executive in 2006, according to the complaint.

New Lyrics

In March 2007, an analyst wrote lyrics to the tune of “Burning Down the House” by the rock group Talking Heads.
According to the complaint, it began:
“Watch out / Housing market went softer / Cooling down / Strong market is now much weaker / Subprime is boi-ling o-ver / Bringing down the house.”
The government said the analyst later sent a video of himself singing and dancing the first verse “before an audience of laughing S&P co-workers.”

#5 What Gradual Economic Devolution Looks Like to Bill Gross of Pimco

Beware 'Credit Supernova' Looming Ahead : Gross

Published: Monday, 4 Feb 2013 | 12:02 PM ET

By: Jeff Cox ; CNBC.com Staff Writer

"Pimco's Bill Gross looks at the investing universe and sees a dangerous supernova - a looming explosion that could see investors lost in space.
The head of the Pacific Investment Management bond giant has issued an ominous forecast in which he worries that the global central bank-induced credit bubble "is running out of energy and time." ...
As a result, investors will have to get used to an atmosphere of diminishing returns and portfolios that will hold more hard assets like commodities and fewer less-tangible financial assets like stocks.
"Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic," Gross said in his February newsletter.
"When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets," he added.
Gross advocates investors turn to gold and other commodities for inflation protection and currencies and assets in other countries that don't have such active central banks and huge debt loads. He favors Australia, Brazil, Canada and Mexico. ..."