A Hot Mess

You wouldn’t know it from the ever-rising stock ““market””, but something is really wrong beneath the surface of the financial system.

The Fed is lying about it, too. So is the mainstream financial press, through sins of omission, seemingly unable to perform the most basic function of asking obvious questions and following them up.

Maybe this all gets resolved peacefully, maybe not.

I’m not taking the chance. That’s why I’m filled with a practical urgency to close on our new home in the country, on good soil and with abundant water. As well, the plans to collaboratively purchase an additional property are moving along better than expected with amazing people wishing to be part of and support something that is at least promises to aim towards doing something positive about our many predicaments.

This lack of transparency by the Fed, et al., is what worries me the most. Either they’re outright lying about what’s going on – which means it’s so bad they don’t want to say what it is – or they themselves don’t know what’s happening, which is a repeat of 2007/2008. Which is worse, ignorance or malfeasance? They’re both bad.

Remember all those times Bernanke said “subprime is contained” and the Fed staffers were busy cranking out paper ‘proving’ there was no housing bubble?

Yeah, me too, and that’s why I’m worried.

Charles Hugh Smith put it very well in his piece last week where he said:

A "market" that needs $1 trillion in panic-money-printing by the Fed to stave off a karmic-overdue implosion is not a market: a legitimate market enables price discovery. What is price discovery? The decisions and actions of buyers and sellers set the price of everything: assets, goods, services, risk and the price of borrowing money, i.e. interest rates and the availability of credit.

The dirty little secret that nobody dares whisper lest the whisper trigger a self-reinforcing avalanche is that this Fed-manipulated “market” is illiquid: if any serious selling were to arise, there wouldn’t be enough buyers to stave off a complete implosion of the bubbles.

The Fed’s game is to create the illusion of liquidity by being the buyer of last resort, only now the Fed is the only buyer. This is the toxic consequence of the Fed’s 12 long years of Socialism for the Super-Wealthy: thanks to the Fed’s destruction of price discovery, the super-wealthy no longer worry about liquidity, so leverage is the name of the game.

The Super-Wealthy can gamble with hundreds of billions to stripmine the economy and not worry about whether a buyer will actually pay the overvalued price of the asset, because they can count on the Fed to step up and panic-money-print whatever sums are needed to maintain the illusion of liquidity.

(Source – OfTwoMinds)

The “illusion of liquidity.” That’s exactly what this all looks and feels like.

The Fed’s only game is to keep the charade going. But they are apparently completely unaware, as they were back in 2008, of what exactly the problems really are.

The issues cannot be fixed with more liquidity, only temporarily papered over. Tell me, how does ‘more liquidity’ address any of the following?

  • Record levels of corporate debt
  • Record levels of corporate ‘liar loans’ (i.e. cov-lite and ‘massaged’ EBITDA junk debt)
  • Exploding fiscal deficits
  • Over-leveraged households
  • The impossibility of infinite growth on a finite planet
  • The fact that shale oil is a consistent money loser at every price but it’s the entire hope for the future?
  • Disappearing species, especially phytoplankton and insects (i.e. the bottom of the food pyramid)
  • Unaffordable housing in many major cities
More liquidity might make financial assets explode higher in price, but unless there’s some serious structural and economic follow-through to justify those excessively high prices, all that’s assured is that the eventual correction will be more painful, and more damaging.

REPO Madness

Last week Martin Armstrong had a couple of really insightful article that ‘rang true’ for me about the REPO loan madness that has been playing out since September (2019).

Armstrong writes:

The unannounced meeting between the Fed and Trump was a briefing on the Repo Crisis BECAUSE the real crisis cannot be discussed publicly.

I have not been getting much sleep lately. This is a very serious crisis and all the BS on TV of these pretend analysts giving their two cents is really amazing. They are making up stuff and speculating because they have no idea how the global economy truly functions and they do not advise institutions. They do not understand the risks for year-end and calling this QE proves they do not understand what is taking place.

There are too many people trying to sound authoritative when they are clueless. Yet they seem to have to say something to pretend they know what is going on when all they are doing is creating confusion. We have more institutional clients around the globe on every side than anyone would imagine. We are in the front row with real live clients in the middle of this issue.

I appreciate the severity of this crisis. Requests to attend board meetings I have only been available by phone. I simply cannot fly all over the place. I really wish I could just come out and spill the beans, but this situation is too critical at this point and I fear that if someone does not blink here, we are headed into a global political contagion.

This is why a deal had to be tentatively arranged with China on trade. There are politicians out of the loop and this whole thing which is way too far above their heads to even grasp an understanding.

(Source – Armstrong Economics)

The crisis is very real and quite severe. The fact that it’s not on the front pages of the WSJ, et al., confirms just how serious it is (another crime of omissions that speaks as loudly as an obvious lie).

What was supposed to be a ‘temporary’ program has only grown larger and larger, and the finally scramble into year-end is going to break every possible record of ‘temporary’ liquidity injections by the Fed at any point during or since the Great Financial Crisis.

The power structure doesn’t want to ‘spook the herd.’ They truly believe that they are doing some sort of public good by not panicking anyone, the same rationalization used by the Japanese government to lie to its own citizens about the Fukushima nuclear disaster.

All we can do out here in the cheap seats is squint through the smoke to try and assess just how dangerous the fires truly are.

A Credit Suisse analyst, Zoltan Pozsar, made a big splash last week when he called the Fed’s actions “QE4 for year-end” and warned that there was a very large risk of a market melt-down if the Fed didn’t pump in enough liquidity.

Again, Armstrong on the topic:

I do not know if Pozsar is being too cavalier with his comments or if he’s deliberately trying to spread disinformation. This is by no means a “fourth version of quantitative easing” when the US economy remains strong and the Fed has acknowledged that fact. It does seem to me that he is trying to deflect people from looking at Europe and pointing his finger at the Fed.

The Fed is compelled to be the man in the middle because banks have withdrawn from lending to banks because they do not know who has the risk with Europe.

The US Treasury stated it is investigating the over-regulation by the BIS, which has impacted the repo market. The Fed is trying to control short-term rates and this has NOTHING to do with “stimulating” the economy. The BIS has impacted the regulation with Basel III, which the BIS will not accept responsibility.

Calling this Repo Crisis QE is up there with calling Trump a racist because of his wall. Yet, Mexican is not a “race” any more than being American, German, Greek, Italian, Spanish, or British. The term is ethnicity, not race. This is not Quantitative Easing, which is lowering interest rates and stimulating the economy. The Fed is trying to prevent short-term rates from rising because there is a liquidity crisis created by banks refusing to participate in the repo market.

The suggestion that the Fed will have to move to long-term bonds fails to understand what is taking place. I cannot imagine that any banker would make such a statement. They either do not know what the repo market is or they are trying to create disinformation to protect Europe. This is very curious.

I believe the White House has been briefed on the crisis and it has also impacted the China trade negotiations.

(Source – Armstrong Economics)

That’s an interesting supposition set. The China trade deal was goosed along because Trump met with Powell and learned of some serious indigestion happening in the financial plumbing that needed some help. The China ‘deal’ was therefore rushed through (nobody even knew for two days how many soybeans China was allegedly buying, including China) and it had an odd urgency to it.

The other idea here is that the problem isn’t located in the US, it is a European banking problem. That’s an idea I can get behind, especially since the share price of Deutsche Bank has been in a headlock for months:

Deutsche Bank is my #1 candidate, as it is for many, to be ”the hot mess” at the center of the European banking crisis that Armstrong is theorizing about.

That it has been magically ‘floored’ at $7 per share for so many months has struck me as rather odd.

Once again, all I can do at this stage is to pose this challenge:

Except now I need to expand that to Europe’s equity markets too. We already know that Japan’s are a government utility, so that doesn’t need to be posed – that’s already been securely moved to the “conspiracy fact” side of the ledger.

So many things have made that same transition of late from ‘nutball theory’ to ‘recognized truth’ that it’s now a certified fad – the hot new thing.


The world’s central banks are in panic mode. Again. Or maybe still.

Their words are soothing, but their actions are panicky.

They are a one-trick pony. Here’s that trick:

What we need to ask is “So then what?”

Okay, the equity markets have been whipped higher by central bank printing, So then what?

Has infinite growth suddenly become possible? Will the insects come back? Will the wealth gap shrink? Will shale oil suddenly become profitable? Will corporate debt and fiscal deficits come back to manageable levels?


In fact, the exact opposites of all these things occur instead. The Fed is enabling or papering over every possible symptom of distress and rot as if Band-Aids could cure cancer.

Even if I generously assume that the Fed is comprised of well-meaning people who are trying to accomplish something good, they remind me of that one relative that ruins every holiday get-together with toxic comments they think are “helpful.”

I’m expecting stocks to explode even higher because the Fed is busy firehosing liquidity all over the place, as if that were “helpful”. Instead it’s toxic. It will end badly.

It’s all a shame, because it doesn’t have to go this way.

Unfortunately, the people who will be harmed the worst will be ‘the little people’. The deep insiders will be safe and secure, likely even made whole by whatever series of future bailouts will follow the current REPO bailouts (because that’s what they truly are).

In closing, I agree with Armstrong: this a serious crisis. It’s being lied about, nobody really gets it, and it probably has something to do with Europe.

This is a companion discussion topic for the original entry at https://peakprosperity.com/a-hot-mess/

I agree 100%.
Furthermore, I’m going to add, if you have a bank deposit, YOU are lending YOUR money to a BANK.
Its times like this I wish we had that 100% Reserve bank - the one that only has deposits at the Fed. Safest Bank Ever.
This prospective bank was denied a banking license because…because…well I’m not sure why. Probably because the Fed is owned and operated by the banksters, and they don’t want to lose their source of cheap funding, namely, us.

Very good update! 2 recent events seem appropriate to maybe highlight (apologies in advance if they seem a bit too conspiratorial). 1) When Powell met at the residence a couple of months ago, the Fed’s press release related to the event went to great lengths to state their independence (can’t remember the exact language, but it was unusual). Makes me wonder if they realize they are going to need to take dramatic actions as early as Q1 in an election year. They want cover for being seen as enabling Trump’s re-election with further printing and Qe5 (current repo is QE4 in my book). 2) Bloomberg’s entrance into the presidential race (and his decision to skip early primaries and focus on Super Tuesday) reveals to me at least that he thinks he can win. His winning would be dependent upon a recession / market event IMO… Just a thought. But this isn’t like a popular Senator entering the race late. He’s incredibly tied in and privy to information the public and markets aren’t.

To me, Armstrong always comes out very patriotic on the one hand and very suspicious of European dealings on the other. And don’t get me wrong, Europeans can certainly be very cunning. As Jeffrey Snider so thoroughly have laid out in his Eurodollar University on Macrovoices.com, the rise of the Eurodollar system in mainly the City of London and subsequently in other European financial centers was properly the primary reason why Pr. Nixon had to repeal the convertibility of USD into gold.
And as Jeffrey Snider documents, this huge source of dollar funding outside the US domestic banking system broke down in august of 2007, and was probably the actual trigger of the GFC. What I would like to ask is this: If this huge source of dollar funding broke down in 2007, why didn’t the financial breakdown turn into an economic crisis? Surely the TARP-program and the subsequent QE-programmes were no match to the size of the broken-down Eurodollar system. This simple fact leads me to conclude, that the international banks back then must have succeeded in developing new ways of illegal or unauthorized dollar funding.
And though my hunches are based on my limited and unprofessional understandings, I sense that exactly the repo market and even more so the FX market is where we should look for these innovative new ways of creating dollars out of thin air. Probably with extensive use of derivatives.
On a daily basis some 5 trillion dollars’ worth of currencies are traded on the global FX markets, and if I have my numbers right, the value of all the commodities and services exchanged annually is around 20 trillion dollars. So, is there anyone who can explain to me, why a quarter of the whole year’s global imports/ exports worth are traded each day on the FX markets? To me, it makes no sense, and this is why I have to ask, have these FX trades somehow been turned into a mechanism for money creation?
And to a lesser extent, the same question goes for the repo markets, where 1 trillion dollars’ worth of securities are traded each and every day. And as Luke Gromen has pointed out, something broke in the FX derivative market in Q3 2018, which, within this line of thinking, might have caused more strain to be put on the repo market.
Recently, a BIS report was published, which claimed, that the cause of the repo market crisis was not one but several LTCM-type hedge funds caught in a liquidity squeeze. And as I gather, many of the large banks have outsourced large parts of their derivative trading to associated hedge funds. So, if the game is all about some highly advanced ways to create new money supply through derivative trading on the FX and repo markets, it makes sense, that it is a number of LTCM-type hedge funds, that are in big trouble.
And speaking of LTCM, as many in this forum probably knows, it was Deutsche Bank that bore the brunt of rescuing the American banking system at the LTCM collapse in 1998 by not only taking their share of the impaired papers, but right after was pressured to buy up Bankers Trust (the bank most aggressively into derivatives, and by the way, the bank of Donald Trump). That’s the background for Deutsche Bank’s extraordinary derivative book, that eventually will bring the bank down, and that’s why no one should be surprise, if Deutsche Bank has been bailed out by the Fed more than once.
And what’s more, when Deutsche Bank does go under, the skeletons will come tumbling out of the closet, and the revelations will probably cause a political crisis between Germany and the US.

"The following big-picture factors are relevant to the likely timing for a credit crisis:
* Global debt has accumulated to an estimated $255 trillion, up from about $173 trillion at the time of the Lehman Brothers crisis An alarming proportion of it is unproductive, being government debt, consumer loans, and funding for financial speculation as well as owed by unviable businesses.
* With annual debt payments already accounting for most of the US budget deficit and that deficit getting larger, any rise in dollar interest rates would be ruinous for Federal government finances. Eurozone governments are in a similarly precarious financial position. Governments are ensnared in a classic debt trap.
* An estimated $17 trillion of global bonds are negative yielding, which is unprecedented. This is a market distortion so extreme that it cannot be normalised without widespread financial disruption and debtor destruction. There is no exit from this condition.
* The repo market crisis in New York indicates the banking system is in intensive care. The start of it coincided with the completion of the sale of Deutsche Bank’s prime dealership to BNP. It would be understandable if large deposits had failed to transfer with the business and gone to rivals instead. The problem has continued, indicating that senior bankers’ groupthink is already turning from greed to fear.
* US bank exposure to collateralised loan obligations and the leveraged loan market, comprised mainly of junk loans and bonds, is the equivalent of most of the estimated $1.9 trillion sum of bank capital. It confirms this article’s thesis that the level of ignorance over banking risk is the late stage of the bank credit cycle and likely to be catastrophic.
* The share prices of Deutsche Bank and Commerzbank indicate they are not just insolvent but will need to be rescued - and soon. Banks in other eurozone jurisdictions are in a similar situation. However, all eurozone countries have passed bail-in laws and do not expect to bail out individual banks. The upshot is at the first sign of a bail-in being considered, a flight of large deposits will very likely be triggered and bank bond prices for all eurozone issuers will collapse. The room for error in crisis management by central banks is considerably greater than at the time of the Lehman crisis eleven years ago."

Sven Henrick is a market analyst I respect highly. He’s been itemizing the many ways the current melt-up in stocks has no precedent, especially given the lack of any supportive underlying fundamentals-based narrative.
He posted this example today:

It’s all about gobs of Fed-provided liquidity at this point…

Peter Toogood, CIO of The Embark Group, says there is “no logic” to buying risk assets like equities other than to “chase the gilded lily.”

I’ve not heard this expression before and can’t find an explanation. Please help.

Gilding the lily” is an old expression for unnecessary (even ridiculous) excess.
A lily is beautiful in and of itself; trying to make it more ‘beautiful’ by covering it in gold just isn’t needed. In fact it’s excessive and inane.
Toogood is saying that today’s market prices are similarly ridiculously excessive. The investors jumping into the market at this stage are hoping for even crazier (and higher) prices from here. Or put in other words, “chasing the gilded lily”

Bought at a > 233 TTM P/E as more and more use less and less PC.

I’m not au fait with a lot of jargon…

For those of us who have been considering putting some of our savings into Treasury Direct so as to not have it at risk of a bail in, as has been explained on this website previously, has any of this (info from above post) changed PP’s perspective on the relative safety of keeping savings in Treasury Direct? If the Fed is backstopping everything, then they can print the money to pay us pack for the bonds. But all the printing could lead to a currency collapse, in which case, holding bonds doesn’t do any good if the money we get back is worthless. Is it a timing thing- that it would take time for it to collapse? And we may know in time to shift it into hard assets? Or is there something I am missing in this equation?
I answered my own question by re-reading the original Treasury Direct post, last two paragraphs were what I was wondering. Thanks Adam and Chris!

TTM P/E is Trailing Twelve Month Price to Earnings and PC is Personal Computer.

Wow, big up Peter Toogood of Embark for speaking out so plainly on CNBC… ?
Finally…everything said on PP is echoed in equally plain text on the gogglebox! Will he ever be invited back…strong doubt ?