The ShamWow Stock Market

By: Barry_M_Ferguson

Let us record history as it happens. Let us not let the truth become altered by the hands of time so that it fits a message of those who seek to rule us. Let us make permanent a recording of the week that passed in real time so that generations of the future will be able to look back to the moments that changed the rules that govern their life. 

Week ending 9/16/2011: This just in for the week - jobless claims rose, US median income slipped 2%, mortgage foreclosures increased 33%, Greece edged further  toward debt default,  Bank of America prepared to layoff 35,000, the US Post office announced the same layoff number, stock markets rose! ShamWow!!!. Maybe just sham. Certainly wow! Once again, central cabal banks continued to turn the stock markets into stock shams. The problem is this. The big banks in Europe loaned the weaker sovereign economies of Europe too much money so that those weaker nations could feign prosperity. You know - they all want to imitate the US. Now those sovereign nations, with Greece at the forefront, cannot repay the loans. The solution is this. The big banks will be given more free money by the central banks of the world! Central banks now act like one of those ShamWow towels that clean up spills. It is a sham! It is a wow! It is a ShamWow!

In fact, the central banks of the US, Europe, Japan, and Switzerland have pledged an ‘unlimited’ amount of US dollar ‘loans’ to the troubled big banks of Euroland. It’s just too bad that the money the central banks are pledging is the money of the US citizens. ShamWow! The big banks recklessly loan money out, leverage it with derivatives and swaps, inevitably face default, and then turn to central banks for a ShamWow towel to mop up the mess. (Interestingly enough, the ShamWow towel proclaims to hold 12 times it’s weight in liquid. Central banks strive to do the same to perpetuate sovereign debt!) This has happened over and over and over again through history. Tax receipts are confiscated, fiscal autonomy is compromised, and capitalism is circumvented all by the hand of central banks. The result is wealth continues to get soaked up by those who extend the ShamWow towel. When will the populous of the world put a stop to it?

Most likely the answer to that question is never. Did I mention that the stock market went up this week? Isn’t that all that counts? The populous is clueless to the role of central banks acting as a ShamWow towel. Besides, the populous thinks the central banks are here to help us. What if the central banks had to use their own money and not ours? Would they still be so quick to extend a loan? Loans go bad sometimes. That is a risk of lending. Why should citizens surrender money from their Treasuries so that central banks can use that money to make lending risk free for the big banks of the world? 

What prompted this latest central banker intervention? The excuse given was there was a need to alleviate fear of runs on bank deposits in Europe. Oh really? Consider something else from the US Fed.

The Federal Reserve also said industrial manufacturing production rose .5% in August. This hardly seems plausible given that the Fed’s New York and Philadelphia regions reported continued slowdowns. However, the Fed did say the increase was almost all due to an auto manufacturing uptick. Pardon me while I inject some skepticism.

Haven’t we been told over and over that banks in Europe are fine? Aren’t they all well capitalized? Haven’t they all passed their ‘stress tests’? If the answer to these questions is ‘yes’, then why would any of them fear a run on deposits? Now for the big question. Why are the central banks orchestrating US dollar swaps so that the European banks will have ample supplies of US dollars? If there is indeed a run on bank deposits in Europe, would having ample US dollars at the teller windows really help? If the situation was reversed, would Americans accept euros from their banks instead of US dollars?

As we search for the truth in central banker action, we should consider this. First, this is the same deal that got Greece into trouble in the first place. Greece breeched loan limits by working with Goldman Sachs to disguise loans as currency swaps. Second, no lender loans money unless they think they have the default risk under control. Sovereign lending is backed and leveraged with derivatives and swaps. As the risk of default increases, as it has with Greek debt and others, the cost of insuring that default through credit default swaps increases. Generally the collateral on a swap is 20% or less of the notional value and generally the preponderance of such instruments are denominated in US dollars. Thus, we might assume that the real reason for the ‘unlimited’ availability of US dollars is to facilitate an expansion of credit default swaps. As the debt expansion increases, so too does the need for credit default swaps, the amount of collateral to propagate the swaps, and in turn the need for more US dollars particularly in the European theatre.

Finally, Americans should take note that the Federal Reserve Bank is again engaged in currency swaps that send US dollars abroad. This should further amplify the fact that this currency is the Federal Reserve Note. It is owned and dispensed at will by the Federal Reserve Bank and not the Congress of the US. The Fed did not need to check with anyone before making such deals. Not the Congress. Not the Treasury. Not even the so-called President.

Let history record accurately the events of this past week. Future generations might want to know why and when their money changed so much from past money. And today, no one raises an objection. Part sham. Part wow. The central bank uses the US currency as a ShamWow towel to mop up uncollectible debt, re-capitalize bank balance sheets, and to proliferate credit default swaps.

Oh, and one more thing. Whenever anything gets offered in an ‘unlimited’ supply, doesn’t its value trend towards worthlessness? But who cares? The Dow rose this week - right? I wonder who made it rise? 

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory
barry@bmfinvest.com
www.bmfinvest.com
www.bmfinvest.blogspot.com

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

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