A Critical Key to EndGame Investing
Stock-Markets / Financial Markets 2013 Nov 09, 2013 - 12:17 PM GMTBy: DeepCaster_LLC
“FRANKFURT, Nov 7 (Reuters) - The European Central Bank cut interest rates to a record low on Thursday and said it could take them lower still to prevent the euro zone's recovery from stalling as inflation tumbles.
“The move took financial markets by surprise - the euro fell sharply in response while European shares rose.
“Underlining its support for the euro zone economy, the ECB also said it would prime banks with as much liquidity as required until mid-2015….
“European bank shares climbed….”
UPDATE 6-ECB cuts rates to new low, ready to do more if needed,
Eva Taylor, reuters.com, 11/7/2013
The ECB’s recent rate-cut action (and especially its effects on the Markets) is but yet another Manifestation of the Most Powerful Ongoing Trend increasingly determining Major Markets Performance.
Understanding this Trend and its likely Denouement are Critical to successful Investing and Trading going forward, and Critical to understanding The EndGame of The Most Powerful Force driving The Markets now and going forward.
This increasingly powerful Force in the Markets and the Economy has become manifest in recent years – one even more powerful than The Force in the Star Wars movie series was purported to be.
Whether one like this Force or not, Investors and Traders ignore this Force at their Peril.
The Force is the Reality and Prospect of Fed and other Major Central Bank ongoing and increasing Intervention in Major Markets.
Consider the following accurate analysis from Bloomberg News.
“Treasury 10-year-note yields rose to the highest levels in three weeks after a U.S. manufacturing gauge rose at a faster pace than forecast, weakening the case for the Federal Reserve to maintain stimulus.
"The Institute for Supply Management factory data was a little on the strong side, so it puts the tapering fear back into the market and we start to get higher yields," said William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Mass. "It's become a Fed-centric environment."
The 10-year yield rose six basis points to 2.62%...”
“Solid Manufacturing Report Gives 10-Year Yield A Boost”
Bloomberg News, 11/4/13
Indeed, any time the Taper Fear increases in the Markets, 10 year and other Yields rise, because of the Fear that diminished Fed Buying would no longer support the Bond Market and thus maintain lower interest rates.
And the concomitant $US Strength beginning last week was a result of both
-- Eurozone Economic Weakness with Inflation reported near 4 year lows, increasing the likelihood the ECB was going to ease Monetary Policy (which, indeed, has happened), thus weakening the Euro, and
-- better than expected U.S. Manufacturing data from the recent stronger-than-expected U.S. PMI report, and an ostensibly better Jobs report released Friday, November 8.
But the Key Manifestation of the Power of The Force was that Key Markets’ reaction to both of these was to respond in light of how the Fed and other Central Banks are likely to act in light of them.
We have indeed moved into a “Central Bank-Centric” Economic and Financial Universe. The private for-profit Fed (& other Major Central Banks) are indeed The Force. But there is an increasing Downside to this Interventionist Force, including Hyperinflation Risks, Misallocation of Capital and Artificial and Unsustainable Market levels. Consider additional details the Reuters report on the ECB action.
“The 23-man Governing Council had faced intense pressure to act after a shock slump in euro zone inflation to 0.7 percent in October, far below the ECB target of just under 2 percent….
“Draghi stressed that the ECB still had an "easing bias" to its policy stance. By contrast, many economists expect the U.S. Federal Reserve to begin withdrawing stimulus next year.
"’This will give European exporters much-needed breathing space, with the euro currency finally falling back,’ David Thebault, head of quantitative sales trading at Global Equities in Paris, said of the cut.
“The euro slid more than 1 percent on the day to hit a seven-week low of $1.3304, down from around $1.3490 just before the ECB announcement.
“LIQUIDITY FOR LONGER
“Draghi reaffirmed the central bank's forward guidance that rates would hold at ‘present or lower levels’ for an extended period and said he saw no threat of broad deflation.
“He also said banks would be able to rely on as much liquidity as they needed for longer, with the bank's main refinancing operations to be offered at fixed rate with ‘full allotment’ until at least July 2015.
“European bank shares climbed….”
Ibid.
And consider the Impact of Central Bank Policies on Equities Markets. The S&P is up 24% this year, but Official U.S. GDP forecasts have fallen from 2% to 1.69% and Real GDP (per Shadowstats.com -- Note 1) is Negative. Clearly Fundamentals do not support such elevated stock prices.
In sum, the result of Major Central Banks QE has been and increasingly continues to be:
1) Massive boosts to Mega-Banks (several of which are shareholders of the Private for-profit Fed) Profits and Profits Prospects.
2) Massive Financial Assets Inflation and a resulting Wealth Effect benefitting mainly the already Ultra-Rich and
3) No substantial benefit to the Real Economy or Taxpaying Upper-Middle and Middle Class Workers
This (#3) is reflected in the .7% Euro Zone Inflation Rate in the Real Economy to which the ECB Committee refers – the Eurozone Economy is not recovering.
In sum, under the Pretense of helping the Real Economy, the QE of the ECB (and Fed and other Central Banks) helps mainly the Mega-Banks and Financial Assets Owners
And there are other Negative Consequences flowing from the Central Banks’ QE.
For example, long-term, regarding the $US Primary Trend, the $US has been and continues to be battered by The Feds “No Taper/QE to Infinity/Print-More-Money Policy, by continued Deficit Spending (i.e. repeatedly raising the Debt Ceiling, a consequence of the ignorant and/or careless Obama Admin pressure) and by a panoply of Bilateral Currency Swap Deals which have not included the $US (cf. The recent Chinese Yuan-Euro Swap Deal).
Major Nations Continue to move away from using the $US as the World’s Reserve Currency, a move injurious to holders of Dollar-denominated Assets.
But perhaps the Greatest Negative Consequence is that, having embarked on QE, the Central Banks are finding it impossible to stop for reasons laid out by Alasdair Macloed
“This week an article in Euromoney points out that liquidity in bond markets is drying up….
“The reason for deteriorating liquidity in bond markets is due in part to yields being unnaturally low…. if the Fed insists on mispricing the market with its interventions and zero interest rate policy it must fully support the market with both QE and also twist applied to the yield curve to maintain market liquidity.
“For the investment analysts and commentators that still expect tapering this must come as something of a surprise. The underlying point they have missed is that once a central bank embarks on a policy of printing money as a cure-all, it is impossible to stop, or even to just taper without risking a liquidity crisis. Increasingly illiquid markets are now telling us that QE should be increased.
“The point was rammed home this week by the ECB's decision to lower interest rates….
“At least the ECB rate cut should defuse tapering expectations in US markets, … The Fed now needs to plant the suggestion that QE will have to be increased…”
“There’s a Liquidity Crunch developing,” Alasdair Macloed
Goldmoney.com, 11/08/2013
But unending, and increasing, QE is leading, already, to threshold Hyperinflation in the Real Economy (Note 1) or, more accurately, to Hyperstagflation.
Thus wise Investors must consider Protection, via Precious Metals, from Central Bank Intervention and consequent ongoing Fiat Currency Devaluation and Hyperinflation. They must also cope with Suppression of Gold and Silver Prices by the Cartel (Note 2).
Recent $US Strength provided yet another Pretext/Opportunity for The Cartel (Note 2) to take down paper Gold and Silver Prices again and Commodities in general recently. But given the increasing demand for Delivery of Physical Bullion this cannot continue without an eventual upward launch of Gold and Silver Prices.
The fact is that acquisition of Physical Gold and Silver Bullion by Major Players, and more than just China and India, continues to increase.
This is reflected in the Fact that, just in the past 6 months Physical Gold eligible for COMEX delivery (so called “Registered”) has been shrinking fast… to 660,000 ounces.
If a mere 2% of “longs” hold their positions and ask for delivery, COMEX inventory will be exhausted.
If/When that occurs, there will be a massive spike up in prices.
And that EndGame result is coming, because the Central Banks are locked in to continuing QE. And they will have to continue QE because the Real Economy is not recovering. Consider Shadowstats
“Third-Quarter Data Show Slowing or Stagnant Economic Growth. The big economic reports are in for September, except for the official housing data that have been delayed until the end of November, and except for the initial third-quarter GDP estimate due for release on November 7th. The available numbers overwhelmingly support a sharp slowdown in in third-quarter 2013 GDP growth, from the 2.5% currently estimated as the headline, annualized quarterly real (inflation-adjusted) growth rate for second-quarter GDP. Eventually, third-quarter GDP growth should reflect an outright quarterly contraction.
“Reporting in third-quarter employment and real retail sales showed slowing economic activity on a quarterly basis. With real retail sales corrected for understatement of the CPI-U inflation used in deflating the series, sales contracted on both a quarterly and annual basis….”
“No. 570: Economic Review, September CPI, Real Retail Sales and Earnings,” Shadowstats.com, 10/30/2013
“Despite the nonsensical headline 2.8% third-quarter GDP growth—estimated today (November 7th) by the Bureau of Economic Analysis (BEA)—the economy still has not recovered and shows no prospects of any near-term recovery in business activity. If anything, the new data suggest that industry will have to cut back on production, in order to reduce rapidly rising, unwanted inventories that have not moved due to weak sales. GDP-related updates of money supply velocity are graphed in the Hyperinflation Watch.
“Confirming one reason for weak consumption, www.SentierResearch.com released its estimate today for the September 2013 real median household income index. The index was little changed on the upside, where the gain was not statistically meaningful. Depressed levels of household income mean the consumer does not have the wherewithal to drive an economic rebound. …”
“No. 571: Third-Quarter GDP, Money Supply Velocity, September Household Income,” Shadowstats.com, 11/07/2013
Be prepared to Profit and Protect from continuing QE and its Consequences.
Best regards,
www.deepcaster.com
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