Bernanke Announces The Final Round of QE3: This Time, It's Unlimited

The Fed said:

• it will buy $40 billion worth of MBS per month, with no end in sight. 
• they will hold interest rate at zero until mid-2015 — "a considerable time after the economic recovery strengthens"
• it will continue operation twist
• the US has enjoyed broad price stability since mid-1990s

My points:

• The Dow is at it's all time high, the interest rates and treasuries at their all time lows, mortgage rates at their all time lows, most commodities not too far from their highs, and according to official figures, employment has dropped significantly — obviously; this is a lie. Amazingly, Bernanke didn't want to prove the market's expectations wrong, and provided exactly what the consensus wanted.
• The Fed has been forecasting an economic recovery for years, and nothing has happened, yet, they will keep on doing the same thing; over and over again. They again forecast a strong economic recovery to come in the next few months, while it's obvious that the reality is economic contraction and the Greater Depression...
• My personal opinion about Bernanke is that he's the most inept Fed chairman ever, and most probably one of the worst economic forecaster ever. I don't think his brain is wired for the real world, and even though I have the lowest esteem possible for him, Bernanke managed to surprise me by is foolishness and prove me wrong on my forecast — Mea Culpa. I know will consider him an economic and monetary terrorist. 
• Will printing money to buy MBS do anything to help unemployment? Only a madman will find a direct causation between the two, specially since when mortgage rates are at their all time lows.
• Will QE provide a boost to the markets? I don't think it will beyond the first few days after the announcement and the resulting euphoria. Why?
• Fundamentally, the markets are a discounting mechanism. So when the news comes in about the purchase of mortgage for $40 billion a month, this gets almost immediately priced into the market. The market only move by about 2% while integrating this discounting of the QE3.
• The previous QE1 and QE2 seemed to work on the surface because they were announced when the markets had experienced significant declines and sentiment was very low. Currently, we're at the opposite: markets are at euphoria levels and irrational exuberance and confidence at historically high levels. When this happens; there's room for only one way: down.
• The probability that Bernanke has signed his and Obama's political suicide is very high. Hopefully, Obama won't be elected and another inept President will take over and do a favour to the world by removing this economic terrorist from his position.

I'll need some time to rethink and see if my deflationary forecast might be postponed due to this "indefinite" printing of money... 

 Here's the Bloomberg report:

(Bloomberg) 2012-09-13 — The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.

The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."

[...] The decision provoked a renewed backlash from Republicans, including Senator Bob Corker of Tennessee, who said Bernanke’s policies damage the Fed’s credibility while doing little to spur the economy.

[...] Growth will improve to as much as 3 percent next year and as much as 3.8 percent in 2014, up from upper estimates of 2.8 percent and 3.5 percent in their previous forecasts. The so- called central tendency forecasts exclude the three highest and three lowest of 19 estimates.

While the U.S. has “enjoyed broad price stability” since the mid-1990s, the employment situation remains a “grave concern,” Bernanke said at a press conference after the statement. “The weak job market should concern every American.” 

The Fed said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage- backed securities.

[...] Republican presidential candidate Mitt Romney has said he wouldn’t reappoint Bernanke when his term ends in January 2014. Glenn Hubbard, the Columbia University Business School dean and Romney adviser, has said additional bond purchases by the Fed would do little to shore up the economy.

Robert Prechter Debates With James Turk About Deflation vs Inflation on GoldMoney.com

The 30min conversation between James Turk and Robert Prechter is available on YouTube.

Points discussed are:

• Topping in stocks, most stocks having topped in May 2011, with the blue chips only taking until May 2012 to top
• The rise of the dollar
• James Turk remains a hyper-inflationist, while obviously, the USD dollar has been rising for the past 3 years... 
• Best strategies to protect your assets

Harry S. Dent 90 Minute Interview

Harry S. Dent was interviewed on Gonobo Radio. The 90 min interview is available on YouTube and embedded below:

Harry is still a deflationist, and expect all hard commodities to decline, along with the stock markets. This is a long term perspective interview, and remains interesting, although Harry is declining in my esteem as he's making more and more comments with which I strongly disagree, and starts sharing political opinion along with his demographics and markets analysis, and for most parts, his political ideas are plain dumb.

A few quotes that might shock inflationists:

• I don't like gold, I don't like silver
• Commodities have peaked in 2008 and have experienced their secondary peak in 2011.
• Commodities are going down for the next decade.
• Keynesian economics are going to die here.

Stupid comments:

• The rich have to pay more taxes because they benefited the most from the boom. This is a political, socialist opinion, which doesn't fit with the rest of the talk
• There's not enough gold to go back to the gold standard. That worked during the Roman empire, but it wouldn't work now. That's one of the most stupid yet most common error about the gold standard. Gold is a measure of value and wealth. It doesn't matter how much there is, as long as there's a fixed and stable amount. It's as to say that there aren't enough yards or kilograms to measure the length of the roads, now, because there are far more roads now than during the roman empire. The price of anything can be determined instantaneously by dividing the price in whatever currency, by the price of spot gold, in that same currency. It doesn't contain any relation to the amount of gold available.

Several Years After the Money Printing of the Fed has Began, Inflationists Still Don't Undertand The Treasury Market's Behaviour

After many calls for hyperinflation, silver at $300, gold at $5,000, treasury rates at 10, 20%, inflationists still can't get around the fact that yields are at a record low, and still cannot understand that we're on the same path as Japan, except 20 years behind.

(Bloomberg) May 30, 2012 — The U.S. Treasury 10-year yield slid to a record while stocks tumbled and the euro weakened to a two- year low as Spain struggled to recapitalize its banks, concern grew about Greece’s future in the euro and American home sales declined. Italian and Spanish bonds tumbled.

Ten-year note yields lost as much as 12 basis points to 1.6254 percent as of 11:45 a.m. in New York. [...]. Two-year German yields reached zero for the first time.

 (Bloomberg) May 30, 2012 — German two-year notes rose, sending yields to zero for the first time, as investors were prepared to forgo a return in exchange for safety amid Europe’s escalating debt crisis. 

Ten-year bund yields in Europe’s largest economy also dropped to a record.[...]

“It’s just panic,” said David Keeble, head of fixed- income strategy at Credit Agricole CIB in New York. “We have so few safe assets in the world that just a small move in risk sentiment causes quite strange and outsized reactions. Until we’ve got the Greek election out of the way we’re just going to be in this horrible world. If you’re buying Europe right now there’s only really one credit which people want.” 

Germany’s two-year note yield fell four basis points, or 0.04 percentage point, to zero, before closing at 0.01 percent at 5 p.m. London time

I agree that there's a shortage of safe assets. The real safe assets, gold and silver, have bubbled to much, that they've showed there are not safe at all: Silver is down almost 50% from the peak a year ago!

In the meantime, idiots at Sprott Asset Management (namely, the founder, Eric Sprott, and the Chief Investment Strategist, John Embry) are still calling the market manipulated, and gold and silver to go to the stratosphere. I'm so saddened as their clients will lose their shirts on this.

Harry S. Dent Turns Bullish on Stocks, Forecasts New All Time High

In one of the most amazing bear-capitulations of the past many months, Harry S. Dent, interviewed on GoldSeek Radio (link to the MP3 file embedded below, interview starts at about 42"30') on Friday, announced that stocks will make a new high, at about 1,600 S&P 500 points.

Points from the interview:

• QE3 in the next 2-3-4 months
• Stocks and gold will like it
• It will be inflationary
• Now believes the stocks will finish 2012 in record territory
• S&P to reach 1,600 and Dow 15,000 by early next year before the Fed runs out of bullets
• Gold to gain 10-15%, Silver to reach the $40s but not make new highs
• At least a 70% crash to follow (2013?)

 

For those of you who have been following my blog or Harry S. Dent, you are probably quite aware of him being a vocal deflationist, and forecasting a market crash just a few months/weeks ago.

If Harry S. Dent is proven wrong on this call, it could very likely to be one of those capitulations which marks tops. Jeremy Grantham did it back in April 2010. Will it be a long term or a short term one? I can't tell yet. 

Japan Update: GDP Sinks, Record Trade Deficit, Fukushima Temperature Surpasses 752 Degrees, Pension Funds Nightmare Scenario

23 years into the depression following the Government and Central Bank sponsored the real estate and credit bubble in Japan, and with trillions of dollars wasted on Keynesian stimulus, there's still no end in sight, and things are actually getting worse and worse — depending on what the government will do, the end game is either going to be: massive multi-trillion default on the JGBs or hyper-inflation. Nice huh?

Here are main items from the past week or two:

Feb. 13 (Bloomberg) -- Japan’s economy shrank an annualized 2.3 percent in the fourth quarter, more than economists estimated, as slumping exports undermine a recovery from last year’s record earthquake. 

The contraction compared with the median forecast for a 1.3 percent decline in a Bloomberg News survey of 26 economists. Growth was a revised 7 percent in the previous quarter, the Cabinet Office said today in Tokyo.

Another report, another opportunity for the economists — usually referred to as "the useless bunch of highly overpaid ignorants" — to prove how useless they are and how little they understand about the economy.

Feb. 19 (Bloomberg) -- Japan posted a record trade deficit in January as the yen’s strength and weaker global demand eroded manufacturers’ profits and slowed the nation’s recovery from last year’s earthquake and tsunami. 

The gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier as energy imports surged, a Ministry of Finance reported in Tokyo today.

[...] In Japan, the country’s trade deficit of 2.49 trillion yen in 2011 was the second largest since World War II. That also contributed to the nation’s current-account surplus sliding to a 15-year low in 2011.
[...]
“Clearly Japanese manufacturers are struggling,” Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo, said before the report. “We aren’t really expecting a major pick-up in external demand because the U.S. and Europe are undergoing balance sheet adjustments.”
[...]
Japan’s exports to the EU, its third-largest export region, fell 39 percent from 2007 to last year, according to Ministry of Finance figures.
[...] 

With global demand for imports out of Japan dropping, and energy imports into Japan surging, I guess that the BoJ must be very clever to try to weaken the Yen, right?

 And in addition to the economic depression, the natural and human catastrophes are pilling in. Here's an update on Fukushima — an made in Japan, man made global disaster:

Feb. 13 (Bloomberg) -- Tokyo Electric Power Co. said the temperature in one of the damaged reactors at its Fukushima nuclear station rose to levels above safety limits even as it injected increased amounts of cooling water. 

One of three thermometers indicated the temperature at the bottom of the No. 2 reactor pressure vessel rose to 93.7 degrees Celsius (200.7 Fahrenheit) today, higher than the 80 degrees limit, Ai Tanaka, a spokeswoman for the utility known as Tepco, said by phone today. 

 But Zero Hedge claims:

But major Japanese news sources Yomiuri and Jiji note that the thermometer in reactor 2 has since climbed to 272.8 degrees Celsius, and then hit the upper limit of the thermometer at 400 degrees Celsius (752 degrees Fahrenheit).

Finally, pension funds are struggling in Japan with rates at record 0.5% for the past 2 decades or so, and equities not performing globally. Fraud and lies will not help solve the issues.

Feb. 23 (Bloomberg) -- Japan’s financial regulator ordered AIJ Investment Advisors Co. to halt its business after finding the asset manager’s clients funds of about 183.2 billion yen ($2.3 billion) may be “adversely affected” and started a probe into the 263 asset managers operating in the nation. 

“We’ve ordered AIJ to halt business for a month in order to safeguard investors, as it appears client assets have been adversely affected,” Financial Services Minister Shozaburo Jimi told reporters at a briefing in Tokyo. The regulator is still investigating the firm and can’t comment on losses. The suspension lasts from today until March 23, the regulator said. 

AIJ, a Tokyo-based asset-management firm, may have lost most of the 200 billion yen ($2.5 billion) it manages for companies’ pension plans, the Nikkei newspaper said today, citing unidentified securities investigators. Regulators have been investigating AIJ since the end of January and are unable to explain where some money went, the Nikkei reported. 

Japanese pension plans have been suffering from two decades of slumping markets and an aging population. Alternative investments were becoming one of the options for the retirement funds, which have traditionally invested mainly in bonds, as ways to maintain steady returns and fund retiree benefits in a country where more than one in five people are over 65. 

AIJ, led by Kazuhiko Asakawa, was established in April 1989, and had 120 clients including pension plans with 183.2 billion yen in assets as of the end of 2010, according to a statement from the Financial Services Agency, adding it has 12 employees. 

Only 12 employees?? Wow, you might start from here. How can a firm with 12 employees manage 120 clients and manage many billions of asset?

Japan and the Myth of Independent Central Banks

Let's start about the following quote from Wikipedia on the Bank of Japan (BoJ):

A major 1997 revision of the Bank of Japan Act (jp:日本銀行法) was designed to give it greater independence;^[10] however, the Bank of Japan has been criticized for already possessing excessive independence and lacking in accountability before this law was promulgated.^[11] A certain degree of dependence might be said to be enshrined in the new Law, article 4 of which states:

In recognition of the fact that currency and monetary control is a component of overall economic policy, the Bank of Japan shall always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government's economic policy shall be mutually harmonious.

However, since the introduction of the new law, the Bank of Japan has persistently rebuffed government requests to stimulate the economy

Now Bloomberg headlines:

Feb. 10 (Bloomberg) -- The Bank of Japan is set to refrain from additional monetary easing next week because of signs of strength in the global economy and the boost from reconstruction work after last March’s earthquake.

Governor Masaaki Shirakawa’s board will maintain the overnight lending rate at between zero and 0.1 percent on Feb. 14, according to all 13 economists surveyed by Bloomberg News. A 55 trillion yen ($712 billion) asset-purchase program will remain unchanged, 12 said. 

What happened just 4 days later?

Feb. 14 (Bloomberg) -- Japan’s central bank unexpectedly added 10 trillion yen ($128 billion) to an asset-purchase program and set an inflation goal after an economic slide fueled criticism it has been slower to act than counterparts. 

An asset fund increased to 30 trillion yen, with a credit lending program staying at 35 trillion yen, the Bank of Japan said in Tokyo today. The BOJ also said that it will target 1 percent inflation “for the time being.” 

Stocks rose and the yen weakened against the dollar as the central bank expanded stimulus for the first time since October to revive an economy that shrank an annualized 2.3 percent last quarter. Lawmakers had urged extra efforts to counter deflation after the Federal Reserve adopted a 2 percent inflation target and the European Central Bank expanded its balance sheet. 

Today’s decision “shows the BOJ bowed to political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There will probably be limited impact on the yen’s gains.”

These reports show two things:

1. The economists, this pathetic bunch, are always wrong, and heard on the exact opposite side of what is really going to happen.
2. Independent Central Banks are independent for only as long as they act in the way that pleases the Government and they do what the Gov expects them to do. After all, their independence is given by the Government, and can be taken back anytime, with a simple law. For this reason, the same way that the Japanese government can force the BoJ into more easing, the US Government will at some point force the Fed into stopping the madness — or force the US into defaulting on their debt, since the Fed QE programs do nothing but adding more debt to the US balance sheet...

Whatever the outcome, it's time to put an end to this. Hopefully, we'll have a peaceful end with Ron Paul. 30 years of deflation, or 3 years of hyperinflation are too destructive of the people, the economy and the country as a whole.

James Grant 20 Minute Interview on Capital Account

James Grant was interviewed on Capital Account on October the 24th, and he discusses the Euro mess, the ECB, free markets, fiat currencies vs gold and the mess the Fed has created.

It's a very approachable interview and hence very well worth sending to your friends and family if you want to spread the truth, and the sad reality of our current monetary system.

Fiat Money In 4min

Dominic Frisby has published an interesting video animation about fiat money, inflation and the current monetary system we live in:

Arch Crawford Interview On Gold Seek Radio

Arch Crawford was interviewed on Gold Seek Radio last week-end. What's interesting about this interview is that it was before the Fed announcements and ensuing market action.

Arch is forecasting a drop on the S&P to 950 before hitting lower.

More interestingly, there were talks about hyper-inflation, and discussions about how silver was a great investment. This was just a few days before the silver crash of this week. It's amazing to me how well respected people can be so wrong.

I can't wait to hear the interviews of conspiracy theories on King World News now!

 

Link to MP3 file. The interview starts at 31"30 and finishes at about 43"40.

Interestingly, after Arch Crawford comes Louis Navellier, which I hadn't heard before. He believes that the world economy is growing nicely and that the markets will see a massive rally in the year end.

This confirms my previous posts about too much complacency, and not enough fear, as of last week-end. Let's see how things pan out after this weeks massive drop. Will we see fear and doubt? Or still 100% invested speculators seeing buying opportunities?

Treasury Yields At Record Lows — TIPS Yield close to negative 1% — Deflation is Priced in

The treasury yields are at all time low with the 10 Y bond hitting a yield of 2.00%. TIPS (inflation protected securities) yielded - 0.9%. Yes, that's right, -0.9% as negative -0.9% as you have to pay to own those securities, and won't receive all your money back at maturity. Negative yields on TIPS are showing that the inflation rate will be negative, meaning that it's not inflation but deflation that we are currently facing.

I wonder how much time it will take for hyper-inflationist to realize that we are on the same path as Japan, and not Weimar — for many obvious reason which they will not admit. To see where we are headed, you do not need a crystal ball, what you need is a history book of Japan, from 1989 to today.

Here are a few quotes from a Bloomberg report published before the major drop in the yield:

Treasuries rose for a third day, putting U.S. government debt on pace for the best monthly returns since December 2008, as investors seek a refuge in the world’s safest securities on concern global growth is slowing. 

Yields on benchmark 10-year notes were within six basis points of the record low reached Aug. 9, the day the Federal Reserve said it would keep borrowing costs unchanged until at least mid-2013. Treasuries have returned 1.8 percent since Standard & Poor’s lowered the U.S. credit rating for the first time on Aug. 5 and are up 2.9 percent this month. A Bank of America Merrill Lynch’s Global Government Bond Index that excludes the U.S. has increased 1.7 percent in August. 

[...] Ten-year note yields dropped eight basis points, or 0.08 percentage point, to 2.09 percent at 9:04 a.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities due in August 2021 rose 22/32, or $6.88 per $1,000 face amount, to 100 10/32. Yields on 30-year bonds fell nine basis points to 3.48 percent, while five-year note yields dropped six basis points to 0.86 percent. 

Two-year notes yield 0.18 percent.[...] “Long-term inflation is the main driver of interest rates and that doesn’t exist right now,” Camp said. The difference in yields between 10-year Treasuries and U.S. inflation-indexed securities fell to as low as 2.10 percent today, the least since December. The break-even rate reflects investor expectations for inflation during the next decade.

[...] U.S. five-year TIPS yielded negative 0.90 percent before today’s sale, compared with negative 0.18 percent at the auction of the securities on April 21. Investors bid for 2.57 times the amount of debt offered almost four months ago, versus the average of 2.61 for the past 10 auctions. Indirect bidders, the investor class that includes foreign central banks, bought 39.5 percent, versus the 10-sale average of 35.5 percent. 

Treasuries have returned 7.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Japan’s government bonds have gained 1.1 percent, while German bunds have returned 5.1 percent, the indexes show.

Two Gems Found in a Pile of Garbage — Felix Zulauf and Marc Faber Interviews on KWN

Before I start, I wanted to apologise because this post starts by a big rant, and that I got really emotional after listening for these interviews the whole afternoon, playing catch up.

King World News — KWN as they call it — is a well known lair for crazy lunatics forecasting gold 5 digits, silver $300 or $500 and talking about hyperinflation.

Listening to these interviews make me lose a lot of hair as the likes of John Embry or Eric Sprott are stunningly ignorant of the monetary system and the inner working of financial markets. Generally speaking, any of the people interviewed come with never lower than +100% on any forecast, but it's better if the forecast is about quintupling or more.

Unfortunately, even people I highly regarding have came up to become very disappointing, such as James Dines — Mr. "You've Heard it By Me First", Mr. "I'm the original gold bug". Not only was he happy to discuss about Hyperinflation in the US, but he also did say that at this time, he was the first one to forecast it, and that they heard it for the first time just now — link to full interview as MP3.

So how refreshing was it when I heard Felix Zulauf — on the 16th of July — on this 20 min long interview — link to full interview as MP3 — discuss his opinion the following point — dismissing most of the ridiculously biases questions that Eric King asks him:

• Gold, gold stocks and mining shares.
• Deflation (and not inflation) is what we're going to see — answering King's question about "the ocean of money that is printed" and the "Weimar republic like inflation that will happen in the US".
• The consensus of economic acceleration after this soft patch is all wrong. The whole economy will be in recession by the 4th quarter.
• Was expecting the market to tumble to 1,100 by end of summer (wow! that's exactly were we are at the moment).
• The bond market to make a new major move, to new lows, in the 2% for the 10Y (wow! exactly what happened!) although he doesn't mean that someone should go and invest in long term bonds for the long term.
• The US dollar could look strong for a while [...] The USD will look good during the next 6 months or so — I'm expecting this to happen, it's time he get this one right as well.
• Quote: We are not there yet. The situation of highly inflationary policy in an environment of extremely deflationary pressure by too much debt in the system will continue to keep the CPI at a benign level and interest rates at the very low range historically speaking. It could last for year. It's only later that inflation could happen. — And then Eric King talks about the 1970 and massive inflation again... Deafen by his greed for gold, unable to see or hear the reality around him.

I will definitely follow Felix Zulauf from now on. What a great mind. I'm not sure he'll get invited on this show though.

Next is Marc Faber — link to full interview as MP3 file — who I very much respect, and is one of my heroes, even though he get the inflation-deflation debate from the wrong angle — only equal to himself, it's a very interesting interview and makes  a strong case about investing in gold bullion instead of gold shares. Something many of the crazy lunatics interviewed on KWN do not understand and keep on forecasting a doubling or tripling. I won't discuss into as much details this interview, but I recommend listening to it anyway.

Jim Rogers Short the Long Bond

Jim Rogers is going on record on every financial channel to tell people that he's short the long bond. He actually mentions he went short on the 10th of June. As for the close on Friday, he's already facing a 10% MTM loss (if not levered).

As you know, Jim Rogers is a notable hyper-inflationist — one of the extremely clever investors with Marc Faber, that I highly respect — and he might be proven wrong this time.

I'm very very curious to find out what will happen tomorrow in the markets, now that S&P has officially downgraded the US paper.

Marc Faber Interviews on CNBC and BloombergTV

Marc Faber, aka Dr Doom, is making lots of interesting comments.

On the 2nd of August:
He is "bearish about everything". He remains an inflationist, so still prefers precious metals and equities. "I would prepare for the worst". "You don't won't to be in cash and US treasury bonds."

In the US, they should fire half of the government, including the President.

Correction is due in the gold market.

On the 5th of August:
Markes are extremely oversold, and a rebound will happen today or tomorrow. But the technical damage is too much. 

He's aiming at 1050 - 1100 on the S&P and would be using rebounds as a selling opportunity.

5th of August on Bloomberg:
We're down 10%. The whole world is mad. Investors don't understand that markets are volatile [...].
I think we have seen the highs for the year.[...] We can have a snap back rally. [...] We'll go down to 1050-1100 but I can already smell QE3. [...] We'll see if Mr Bernanke is a true money printer or just an amateur

Inflationistas Find an Unexpected Ally In...

... LiLo! That's right, Lindsay Lohan! Here's what you can read on her twitter account: Have you guys seen food and gas prices lately? U.S. $ will soon be worthless if the Fed keeps printing money!

If there is one guy I don't want siding with me is Jim Cramer. But hey, come on guys, if you are an inflationist or even worse, a hyper-inflationist, you should really reconsider.

China: Consumers Fade — Another Bond Sale Failure

A couple more bricks to the wall of trouble that China has been building. It will end in tears, and those who still believe that China will take over the US in the next few years are fooling themselves.

June 17 (Bloomberg) -- China’s finance ministry failed to draw enough bids for a bond sale for a second time this year as the central bank steps up efforts to rein in inflation.

The ministry sold 13.35 billion yuan ($2.1 billion) of one- year bonds, falling short of its 20 billion yuan target, according to traders at finance companies required to underwrite the debt. The seven-day repurchase rate, a gauge of interbank funding availability, jumped to a four-month high of 6.88 percent yesterday, after the People’s Bank of China ordered banks to set aside more cash as reserves for a sixth time this year on June 14.

“The auction was affected by tighter liquidity brought by the reserve-ratio hike,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “The high auction yield represents investor expectations for a near-term policy rate hike.”
[...]

 Is the Chinese consumer take the baton from the US consumer? It doesn't look it's happening, contrary to what the market is pricing in.

June 17 (Bloomberg) -- At the Haiyang Zhuangshi Co. hardware store in Beijing, sales of paint and aluminum window frames are slowing, one sign of a diminished role for consumer spending in China that’s foiling government objectives.

“It seems the peak days are gone,” said owner Hu Mengbin, 42, whose daily revenue has dropped to about 3,000 yuan ($463) from as much as 4,000 yuan last year after China stepped up efforts to rein in home prices. “Between 2006 and 2008 when the property market was red hot, we could make quick money.”
[...]
Government data this week showed retail sales growth slowed to 16.9 percent in May, less than the average of the past five years and a figure that’s inflated by soaring prices for food. By contrast, spending on fixed assets such as factories and property climbed 26 percent, excluding rural households, in the first five months, the fastest pace in almost a year.

“Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “What has happened is a shift from exports to investment as a driver of growth.”
[...]
“Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the U.K. Treasury. “The trend over the past couple of years has been relentlessly downward.”

Food costs jumped 12 percent in May from a year before, eroding the purchasing power of Chinese households even as policy makers embrace wage gains to bolster domestic demand. Savings are also being hurt, with the one-year deposit rate of 3.25 percent more than 2 percentage points less than the 5.5 percent annual pace of inflation. Limited exchange-rate appreciation also means imported products are more costly.

Property prices are also a burden, with 74 percent of people seeing them as too high, according to a People’s Bank of China survey released yesterday
[...] 

Growth in furniture sales eased to 26 percent in May from 37 percent a year earlier, while household electronics sales rose 15 percent after gaining 27 percent, official data show.

Passenger-car sales fell for the first time in more than two years in May after subsidies for purchases ended this year, supply chains were disrupted by the Japan earthquake, and the property clampdown helped to depress demand.
[...]

James Grant and James Turk discuss gold, the Fed and the fiscal situation of the USA

From GoldMoney:

James Grant of Grant's Interest Rate Observer and James Turk of the GoldMoney Foundation discuss the history and mission of the Fed, how mission creep has taken it wildly beyond its initial purpose into the territory of QE, ZIRP and other fiat currency experiments.

They talk about who benefit from zero interest rates and how savers are penalized by this easy money policy. They explain that the US have been off the gold standard since 1913, Bretton Woods being only a shadow of the classical gold standard. In the last 40 years low interest rates have encouraged leverage and speculation, which have reached incredible levels.

They discuss the fiscal profligacy of the US government. A solution to debt levels could still be found if the political will existed. US strengths and positive momentum could still be harnessed to save the dollar if people's eyes could be opened. However they conclude that every paper currency in history has eventually gone to zero.

James and Jim also talk about ZIRP and the absence of the bond vigilantes after over 30 years of bull market in bonds. How traders no longer care about fundamentals, like balance sheets, but rather focus on very short time horizons and the spreads between funding costs and yields. How this situation is unsustainable.

They see gold still as a very under-owned, misunderstood and marginal asset still shunned by institutional investors, with a few notable exceptions which indicate that the tide could be turning. They see a gold standard in the future, although timing is always uncertain.

At the end they talk about the history of US post civil war specie resumption and parallels to a return to the gold standard in the future. Private alternatives and competing currencies are a possibility; if politicians are too slow to provide solutions the market could do it for them.

Embedded video below, and also available on YouTube:

Warren Buffett — The Ultimate Bull Market Phenomenon

I just came this blog post from M3 Financial Analysis (which I had never seen before). The blog seems to be an interesting one, and the post itself is awesome as it summarizes in a very good way many of my posts on Warren Buffet: the fact that he has been more lucky than skillful, benefiting from the longest bull market and the biggest credit bubble in history, losing his integrity in supporting anti-capitalistic and socialist ideas to push up his own book, and more recently, insider trading and other actions...

Here a few quotes:

Warren Buffett is not an expert at value. Value is non-rational and relative. Nobody is an expert at value since it does not exist. (just look at the 150 pe for the SP500 as an example...is that value now? is it value at 7? Either answer is equally inaccurate since they are both totally arbitrary.)

Warren Buffett is not an expert at derivatives trading. He sold billions of dollars of puts on the SP500, FTSE, Nikkei and Stoxx indexes right near the top of the market. There is a difference between being right and lucky. And though my view is that Buffet has more skill than just luck...he has primarily been the beneficiary of luck not skill.
[...]

Buffett continues to rationalize his holdings and trades. He continues to play out his own psychological patterns. And most important, he is now a victim of societies psychological patterns in that his decisions seemingly leave him no choice but to try to rationalize his actions and thesis rather than do something about them.
[...]
In my book, lucky is being on the right side of the credit-inflation story and playing the fiat game well on the way up. What is not lucky is trying to play that same game when the fiat system is dissolving before your eyes. But success via fiat is a high very much like, I guess, heroin or crack...great when you have some - but terrible when you don't. Buffett is addicted to the fiat system and his high is just starting to dissipate. Soon, he will be looking for replacement therapy. Methadone anyone?
[...]
So, what is Mr. Buffett's current investment technique?

He's become a promoter and a prop for the fiat money system. Masquerading as the last remaining real Bull-market success-story cheerleader, he's trying to convince everyone who will listen of marvelous and imaginative stories. For example, that his old ways (yes the lucky ones he used in the past) are the best choices, that the dollar is going to go in the tank, that holding cash for the last 8 years decreased your purchasing power. Much better to promote your own bubble manifestations like Well's Fargo, Bank of America, Conoco Phillips, GE and Moody's.

What I find truly sad and disingenuous is that he has resorted to promoting himself and his distortions via a structured public relations campaign. Specifically he has been used as a prop by Bernake and Paulson — obviously for his own benefit — is directly lying to people through his Op-ed and interview efforts.
What's more, he most likely is keenly aware of these facts. The only difference is that he has to lie in order to save his empire. If you were in his position you would most likely try to do something too rather than just watch the whole thing fall apart - even if it were crossing the line a bit. If Buffett tries to exit stage left he becomes a victim of his own bull-market demagogue status...everyone will try to exit with him. If he lies...he can simply say he was wrong but tried. (I think Barney Frank uses that technique a lot - but maybe its just most politicians)
[...]
What a down it will be for Berkshire and Buffett. A high climb becomes a long fall. People remember the fall much more than the climb when judging history - especially when they have no money left.
[...]
The thesis that the dollar will go into the tank is a credit-inflation manifestation. The dollar is already in the tank - its down over 96% since the Fed took over managing inflation (if you want to call it that)...i mean protecting the dollar. But isn't it ironic, people are sure the dollar will go in the tank when it only has a few percent to go to get to zero. I am sorry to inform Mr Buffett - the dollar is already in the tank and maybe it wants to go up now for a few years. 38% retracement anyone?

Bank of Japan Prints another 5 Trillion Yen, 60 Trillion in 4 days — That is $750 billion

As it has become customary, Bank of Japan printed a few more trillion yens today. It also appears that yesterday, they didn't print 3.5 trillion as I reported, 5.

March 17 (Reuters) - The Bank of Japan on Thursday offered to inject a further 5 trillion yen ($61 billion) into the banking system, continuing its effort to calm markets in the wake of the yen's spike to a record high against the dollar.

These adds to the $700 billion already printed in the previous 3 days.

March 16 (Canadian Press) Japan's central bank continued to flood money markets with cash on Wednesday, bringing its total emergency funding to nearly $700 billion as it tries to soothe fears about the economic impact of the catastrophic earthquake, tsunami and unfolding nuclear crisis.
[...]
The Bank of Japan conducted emergency operations for the the third day in a row, bringing its total liquidity injection to 55.6 trillion yen ($688.3 billion) since Monday. By flooding the banking system with money, it hopes banks will continue lending and meet the likely surge in demand for post-disaster funds.

It took Bernanke and his QE 2 6 months to print $700 billion, and Shirakawa has now reached $750 billion in 4 days.

As I said yesterday, I am worried that Bernanke and Trichet, the two challengers for the gold medal of money printers, might find the challenge interesting, and also find a new source of inspiration in Governor Masaaki Shirakawa, who by the way, seem to be worshiping Gideon Gono, The Reserve Bank of Zimbabwe Governor.

Bank of Japan Prints another 3.5 Trillion Yen, more than 26 Trillion printed in 3 days

While I am still wondering what the BoJ is trying to achieve by printing money, and wonder also what kind of liquidity issues the madmen at the board are seeing ($250 billion in 3 days?), I am getting worried.

Worried about that? Worried that Bernanke and Trichet, the two challengers for the gold medal of money printers, might find the challenge interesting, and also find a new source of inspiration in Governor Masaaki Shirakawa, who by the way, seem to be worshiping Gideon Gono, The Reserve Bank of Zimbabwe Governor.

One difference there is that Gideon has won: their fiat currency system has collapsed, probably because there were no sovereign bond market to restrain the printing at all.

March 16 (Bloomberg) -- The Bank of Japan added 3.5 trillion yen ($43 billion) to the financial system in a one-day operation today to help ease liquidity.

March 15 (Bloomberg) -- [...] The Bank of Japan added 8 trillion yen ($98 billion) into money markets today, adding to yesterday’s record cash injection [...]

March 14 (Bloomberg) -- The Bank of Japan poured a record 15 trillion yen ($183 billion) into the world’s third-biggest economy today [...]