Thursday, March 24, 2011

Obama and US Allies Picking a fight in North Africa, The FED puts the Brakes on BofA’s attempt to stimulate its Shareholders

3/24/2011 Portland, Oregon – Pop in your mints…
If you turn on the news, it appears that the entire world order is about to fall apart.  Yet somehow, in the face of what is arguably the greatest uncertainty the world has faced in the past 67 years, stock and bond markets remain largely unaffected.  Sure, oil, gold, the Yen, and even US Treasury Bonds have gone up in price, but the increase has not been nearly as dramatic as one would expect given everything that has happened in 2011.
What gives?  Are the revolutions in the Middle East, the three-fold catastrophes in Japan, and today's bombing in Jerusalem somehow already "priced" into the market? 
The market did not even seem phased by the seemingly unilateral decision by President Obama to rally his buddies across the pond to bomb Muammar Ghadafi's forces in Libya.   
In the current order of things, there is always a reason to go to war.  Obama has chosen the reasoning of protecting the Libyan people from aggression at the hands of their own government.  The Americans should be so lucky!
No, the elixir that is currently holding these markets together is now being brewed in ever increasing quatities by the G7 Central Bankers and being served under the brand name "QE" in the US.  Happy hour has been extended and the FED member banks are in no hurry to go home.
Back to Libya, where the French are now getting NATO involved, why is the US intervening on behalf of the rebels?  Is the nation state model of government being disregarded by the President?  At least in the case of Iraq and Afghanistan, the reasoning was centered around a direct threat, albeit remote, bordering on non-existent, to the American people.
Instead, the President has committed the nation to $800 million in up front costs and  $100 million per week of ongoing maintenance costs ($5.2 Billion per year, but who is counting) set up a "No-fly zone" to defend the Libyan people from their own government.  In the increasingly interconnected world that we live in, there is no doubt some appeal that could be made in the name of US national security for such nonsense but up until now, we have not heard it.
This action certainly takes Washington's role as policeman of the world to another level.  The best part is that every dollar spent on this misguided attempt at world improvement will go directly onto the national credit card!
Maybe Marc Faber was right and the US is quietly stepping into a world war in order to distract the American public from the government's failed economic policies.  This logic makes more sense than the advent of a sudden burning desire to defend the Libyan public that the media is currently selling.
It is quickly becoming evident that the recovery being trumpeted is a sham.  Nothing has changed.  The FED continues to throw increasing amounts of money at the system that cannot seem to throw back any real economic growth.  But what else can they do?
They are like a man throwing confetti to a crowd.  Those closest to him (the FED member banks, in this metaphor) are bound to receive a lot, maybe they are covered knee deep in the stuff, while those who are farther back in the crowd are lucky if the wind blows any their way.
Even being so close to the monetary spigot does not seem to be helping some of them.  Word came yesterday that the FED rejected Bank of America's request to increase dividend payments.  The black hole of worthless debt held by Bank of America is so big that only $0.04 of every $8.35 in revenue per share was able to escape to be paid out to shareholders in the form of dividends last year.
Actual Image of BofA Balance Sheet Destroying Capital at a rate of 1% per year
Poor BofA, one bad "strategic" acquisition (they bought the infamous Countrywide Financial in 2008 for what they thought was a steal, putting them in the same league as Fannie Mae and Freddie Mac in terms of mortgages held) has thrown the giant to the canvas.  Even under the most favorable conditions in terms of short term interest rates, BofA has been unable to turn a profit and continues to cannibalize itself. 
Ditto for many of the "profitable" FED member banks, where the difference between a good loan and bad loan can no longer be distinguished.  Most are a simple regulation change away from being declared insolvent.  Never has the line between profitability and bankruptcy been so thin.  Once the US Treasury market blows up, these same banks will become both insolvent and completely illiquid.
It should now be clear why the FED will run the printing presses until the US Dollar returns to its intrinsic value of the paper it is printed on.  Neither the large banks nor the government can afford to let nature take its course in the US Treasury Market.  And now the government is throwing the apparent trump card of a large scale war into the mix.
Don't worry, nature will take its course anyway.  Armageddon here we come!
Stay Fresh!
P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!
Key Indicators for Thursday, March 24th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

Tuesday, March 22, 2011

G7 Fails to Stem Yen’s Rise, The Futility of Market Intervention, Portuguese Government Next to Collapse

3/22/2011 Portland, Oregon – Pop in your mints…
We left off Friday with the G7 Central Bankers reaching deep into their pockets and dumping all of the Yen they had, and then some that they didn't have, in an effort to stem the rise of the Japanese currency.  At first, it appeared to work.  On the surface they were able to avoid a catastrophe in the JGB (Japanese Bond), Nikkei, and US Dollar markets.  But what do you know?  On Monday, the Yen continued to rise as if nothing had happened before finding a trading range near the levels at which the G7 had intervened.
Is this seemingly unrelated crisis in Japan the Waterloo for the US Dollar in the currency wars?  That is our current speculation here at The Mint.
In a world not riddled with government debt and baseless currencies with which to pay them, a disaster of this magnitude in Japan would cause the value of currency on the Isle of Japan to rise and the value of debt obligations to fall.  This is simple logic.  When a disaster strikes, you need things now, not promises of things 3 months to 30 years in the future.  The word currency cleverly captures this idea of having something "currently" and not later.  It is no mystery that it should become dearer as anxiety increases.
In a world that is awash in debt and baseless currency, as our world is, anything can happen.  Anything, as long as it is limited to setting the current price of government debt holdings and competing baseless currencies against one another.  The current flavor of "anything happening" is that, defying all logic, the Japanese Yen seems to have gradually fallen from the speculative buying that bid it to record levels in the aftermath of the threefold disasters which befell northeastern Japan.
Upon further review, "gradually fallen" may not be an accurate description of the price action in the Yen:
Japanese and G7 Central Bankers try to Push the Yen off a Cliff!
As you can see in the above chart, it looks more and more like the Japanese and G7 Central Bankers threw the Yen off of a cliff.  Unfortunately for them, it appears that the Yen has wings and that even the combined efforts of the mightiest Central Banks on the planet cannot stop this rally.
Bad news for the dollar.
Market intervention is, in the long run, futile.  In the short term, however, it can be very profitable.  Just ask Goldman Sachs!
Here is a tip, if you see a market that is being massively intervened in, bet against the intervention.  Following this logic, one could now buy the Yen (but not JGBs, mind you!) without fear.  Free people and the free markets which represent them will always overcome any attempt by a minority of governments and Central Bankers to work against them.  Supply and Demand always prevail in economics.  The only thing that intervention does is to slow the process.
If you understand the supply and demand dynamics of a market and see that demand is overwhelming supply, go for it.  Look at the interventionists as your allies as they continue to hit the pause button so that you can increase your positions.  All they (the interventionists) do is send false signals which end up further restricting supply, which simply makes the reasons for going long all that more compelling.  Just don't go into debt to do it!  Market intervention is futile, and it is a shame that so much of it is taxpayer sponsored.
Before we sign off we cast our weary eyes across the pond and see that the Portuguese are offering the world another example of fiscal democracy at work.  In a scene being played out in democratically elected chambers all over the world, the majority is refusing to give up the government subsidies, entitlements, and boondoggles that they have slowly voted into existence over the years, even in the face of national bankruptcy. 
Voting things into existence and actually working for them are two very different things.  Voting is easy, working is not.  This is the great tragedy of democracy in fiscal matters.
There is an escape hatch from all of this madness, and, in the US, it is surprisingly easy to find and  open.  Hold wealth in silver or gold (click here and Register at Today!), pop some popcorn, and sit back and watch the political theater unfold.  Knowing that your wealth is safe, you may even get a chuckle or two as the wheels come off the bus of fiscal and monetary policy as we know it!
Stay Fresh!
P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!
Key Indicators for Tuesday, March 22nd, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.