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Federal Reserve September FOMC Meeting: Taper or No Taper
#1

Federal Reserve September FOMC Meeting: Taper or No Taper

Chairman Bernanke and the rest of the FOMC met, deliberated, and surprise, surprise...

There will be no taper on QE (the Federal Reserve's asset-purchasing program) this month:

http://money.cnn.com/2013/09/18/news/eco...index.html

I think I have a pretty solid grasp on this (and am making all of this a subject of a novel):

At the end of August, I tried to summarize my understanding:

Quote:Quote:

All of this is predicated on a continuation of quantitative easing. If you understand its technical definition, you'll understand its nature relating to check-kiting and frontrunning, and how it is functionally legalized bribery of those who would otherwise be bond vigilantes.

Bernanke's tapering announcement exposed it by triggering a major bond selloff. The 10 year is fluctuating at around 2.9%, which is a two year high. Every rise of a full hundred basis points costs us $170 billion in taxes for debt service. Merely the mention of tapering caused that.

You blame the Pentagon budget? Well, we are now in a situation where we are (and already have) actually using our military to enforce dollar hegemony and its exchange value. Without all that spending and all these thousands of deaths, all those people depending on welfare would be starving.

Goldman Sachs, one of the primary dealers who act as the Fed's counterparties in its open market operations, came out with a client distribution in 2010 openly recommending the strategy of frontrunning by purchasing treasury securities.

Earlier this summer, I had the opportunity to meet someone working at Morgan Stanley's securities division (another primary dealer). He showed me, in confidence, internal memos to new hires explaining the same thing as GS did, and, in his words "If QE stops, government bonds go from AAA+++ to FFF---." The day that happens, no one shows up at the Treasury to buy those bonds... This is even being generous and giving the most leeway to optimism and saying the Federal Reserve does this on its own terms, not when investors independently decide they're going to get out of the way of the chainsaw.

This is without even going into its ramifications on the rest of the world. The same day as Bernanke's announcement, the Nikkei lost ~10%.

All right-wing fearmongering nonsense, right?

This is going to be a massive block of text, but there's so much to talk about:

So from yesterday till now, the yield on the 10-year treasury fell about 17 basis points, the 20-year fell 11 basis points, and the 30-year fell 9 points. The Fed's stress tests don't take into account interest rates above 3% (I don't remember, need to check). As long as the debt ceiling is raised and taper doesn't occur, we are still in the zero-interest environment.

Such an implied new bond regime would mean a collapse in value of the debt derivatives securities that are keeping most of the Too-Big-To-Fails profitable, so that means financial system collapse, in addition to a myriad of other game-ending things like debt service getting out of hand with a few more full percentage points and we're up to having to pay trillions more in taxes (and not even touching the principle of the debt) - ending corporate buyback (which the Japanese have done for decades) from the ZIRP spigot which enables massive stock overvaluation and distortion of P/E ratios, spark inflation as money pinned down in excess reserves start getting loaned out and transitioning into the M1 money supply.

In addition to the domestic repercussions, any ZIRP debt invested in the European and Asian markets would evaporate, as we saw when Ben first announced taper in May, which caused the Nikkei to lose 7% instantaneously, before he went dovish and talked down the possibility of taper. So this has global implications, affecting literally billions of people. It's insane. It's hard to even imagine the full ramifications.

On a side note, gold fell to $1300 after the Syria situation seemed to cool down, and then rose $70 an ounce in one day as the announcement comes out.

A while back, I posted on how the Senate-Congress student loan compromise on Stafford interest rates, to me, indicates that our government itself is actively hedging itself against a rise. They are expecting it at some point.

In the Q&A session at the end of his Humphrey-Hawkins Congressional testimony back in July, Bernanke said - verbatim - "If we tighten monetary policy, the economy will tank."

The Office of Debt Management under the Department of the Treasury released its third quarterly report for the 2013 fiscal year: http://www.treasury.gov/resource-center/...Charts.pdf

which correlates days on which the S&P 500 rallies at nearly 100% with the Federal Reserve holding open market operations, that day. All the data about extending the weighted average maturity of the Fed's balance sheet and rollover risk is right there. Yet another tell that the government itself is hedging itself for the moment things happen.

Since 2008, there have been around 16 or so quarterly GDP reports - around 12 of which have been downwardly revised. Even if you the government at its word and say that GDP growth is at 2.5%, and believe the CPI accurately calculates inflation, which stands at 1.5%, then the economy only grew at 1.0%. If real inflation is even slightly higher than what the mutilated CPI states, then the economy has been contracting even with the epic trillions of dollars being spent by the federal government.

And. Higher interest rates logically mean that entire industries being sustained by false speculative demand, such as housing, will collapse. Just like how telecommunications companies in the early 2000s disappeared when Greenspan finally raised the federal funds rate and speculative money stopped flowing and a semblance of market equilibrium started to develop.

About 700k of the 900k jobs gained in 2013 have been from the fast food and bar sectors and have been part-time, with temp agency Kelly Services becoming the second biggest employer in the nation with full-time and manufacturing jobs being a net loss, though part of this may be due to ObamaCare being enacted and not necessarily correlated to QE.

Last week, we saw development in the Cyprus-style bail-in (ie, confiscation of deposits) when the FDIC voted 5-0 to no longer insure deposits at foreign US bank branches. The FDIC will be a great study in how government gradualism works.

So even if rates remain low for decades to come - it's zombifying ever greater portions of the economy, degrading the labor force, and making the ending even worse.

It will change the social fabric of this country (it is ALREADY being torn, most of us here are aware of it). Those who don't care about the markets, will find that the markets care about them. More municipalities are going to go bankrupt purely due to their pensions and public sector/private sector mismatches and not even if a major bank goes down - and that is going to affect people. Water and electrical services will go dark, police, ambulances, fire fighters, emergency response teams will not be there. This happens even in status quo conditions.

How do we know this? We know this because municipal bonds aren't subject to capital gains taxes (barring if you purchase them at a discount), creating an artificial preference for them over securities such as stocks which ARE subject to those taxes. That's it. And it STILL didn't help Detroit, or the 20 or so other defaulters since 2008. One of literally hundreds of ways the government suppresses the free market. To think the Occupy Wallstreeters, the Marxist economists, New Keynesian economists, and Democrat/liberal/progressive voters think the free market to blame... it just makes you speechless. They'll keep blaming something that doesn't exist until we're literally slaves.

For a few days, I actually experienced a little doubt that maybe the Fed would taper. But even if it DOES taper in the future - they will have to wind it back up. The basis for my claim? The fact that we're at QE3. We've already seen this before when the Fed ended QE1 and QE2, albeit Bernanke and Co. actually came up with something (slightly) innovative, in that they announced a slight pullback, not an outright end. They managed to mix things up and be less predictable by having the market try to figure out whether it was pricing in the future possibility of the taper before it actually happens.

The bottom line is that a real recovery will only happen when the market clears, and all the malinvestments that the government itself caused finally liquefy. But the pain that entails mean the political leaders of this country will never allow it to occur, therefore they are driving us toward the ultimate destination of currency destabilization/crisis - which if we observe from the German mark, the dollar will be rock solid, and then the end comes suddenly, at which point nothing can be done.
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#2

Federal Reserve September FOMC Meeting: Taper or No Taper

Seems like you know your shit, and I'm very much interested in the economy, but I didn't understand 1/10th of that.

I'd ask you to spell it out for newbs like myself but I know that would take a lot of time and space.

"...so I gave her an STD, and she STILL wanted to bang me."

TEAM NO APPS

TEAM PINK
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#3

Federal Reserve September FOMC Meeting: Taper or No Taper

The fact that he has publicly stated QE will not be slowed down or stopped in the future should be the catalyst that turns the precious metals around(both are up like 5- 6% today) to go to new highs in the near future.

[Image: 133538_600.jpg]

Game/red pill article links

"Chicks dig power, men dig beauty, eggs are expensive, sperm is cheap, men are expendable, women are perishable." - Heartiste
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#4

Federal Reserve September FOMC Meeting: Taper or No Taper

Found another one of my posts: http://www.rooshvforum.network/thread-20949-...#pid512488

Quote:my stock market 2013 post, early August Wrote:

The Fed won't taper, unless they're willing to accept:
the yields on all treasuries along the curve rising, which means debt service eats up hundreds of billions more in revenues (the Fed can't create the money to pay interest on the debt.)
risking a crash in global markets. For example, when Bernanke announced taper in June, the Nikkei fell 7% in the following hours.
fall in the stock market (just look at how the Dow and S&P 500 collapsed when they ended QE1, hence QE2... then the end of QE2, hence QE3.) See the pattern? And homeowners with adjustable-rate mortgages are going to eat it.

We've seen all this before, right, we know what happens if they follow through. Tapering is very unlikely this September.

I'm working on writing a full-length report starting from the very beginning, covering all technical details, the academic and historic side of economics, organizations, progression of events, definition of financial instruments. It is part of my notes for my novel (my favorite author, Chuck Palaniuck, gave me positive feedback last year!), but I also want to make it a well-integrated resource. There are a lot of great analysts to follow like Bill Gross, manager of PIMCO, and Hilsenrath at the Wall Street Journal, who cover events as they occur, and are influential/respected enough to move the markets when they make announcements.

I will post it in essay format, table of contents and everything, when I'm done. I'm waiting on my order of the Great Deformation by David Stockman, which is purported to be a work that "ties it all together, beginning to end the happenings of the 20th century".

It's become a huge inspiration/obsession/aspiration of mine. Maybe one day if this novel ever gets published, it will be required reading for your kids in their school curriculum and I can run epic underground author game haha.
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#5

Federal Reserve September FOMC Meeting: Taper or No Taper

Wow, compared to the last few years gold is cheap. What gives?

Check out my occasionally updated travel thread - The Wroclaw Gambit II: Dzięki Bogu - as I prepare to emigrate to Poland.
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#6

Federal Reserve September FOMC Meeting: Taper or No Taper

Quote: (09-18-2013 11:54 PM)aphelion Wrote:  

Wow, compared to the last few years gold is cheap. What gives?

One of the major ones was the talk of taper from the begining of the QE3 announcement before it was even enacted back in oct 2012 scared investors from thinking this federal reserve pumping would be permenant. Since gold peaked at a little over 1900 a couple years ago the entire QE3 (85billion a month since january 2013) has not been accounted for in the price of gold. This is hugely bullish for gold because now there can be no doubt as the inflationary trajectory of the fed. At some point likely very soon precious metals will hit all new highs because more investors who were previously sitting on the sidelines to see if the fed was serious about tappering will now want the inflationary protection gold provides to investors.

Game/red pill article links

"Chicks dig power, men dig beauty, eggs are expensive, sperm is cheap, men are expendable, women are perishable." - Heartiste
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#7

Federal Reserve September FOMC Meeting: Taper or No Taper

@cacutscat589 do you work in finance? I am curious what is your backround on the markets as you are from what I have read of your posts on the economy well informed.

Game/red pill article links

"Chicks dig power, men dig beauty, eggs are expensive, sperm is cheap, men are expendable, women are perishable." - Heartiste
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#8

Federal Reserve September FOMC Meeting: Taper or No Taper

It was manipulated, I described the April smash here in detail: http://www.rooshvforum.network/thread-15889-...pid504652. I think there was another barrage of futures contracts recently, but haven't looked into it.

I want to point out that the culprits in precious metals suppression are the same primary dealers who are by law the only entities allowed to act as counterparties to both the Fed and the Treasury:

http://www.newyorkfed.org/markets/pridea...rrent.html

Quote:Quote:

Bank of Nova Scotia, New York Agency
BMO Capital Markets Corp.
BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies LLC
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. LLC
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

J.P. Morgan, Goldman Sachs, HSBC with the Jon Corzine case... it says it all.

http://en.wikipedia.org/wiki/Primary_dealer

Quote:Quote:

do you work in finance? I am curious what is your backround on the markets as you are from what I have read of your posts on the economy well informed.

I'm just a university student, but my uncle is a skilled stock broker and through him I've had the chance to talk to several people in finance. Such as the Morgan Stanley trader - who's not just an insider but one of the few people in the country who actually buys the treasuries from the government before it gets to the secondary markets when the retailers investors can buy them.

I recently got into some of the PaddyPower betting on economics (my only bad move so far was betting on the new Fed Chairman to succeed Bernanke... I was 100% dead sure Larry Summers was going to get the position, then he withdrew and I lost money...). picked an exit point in GLD and SLV in April and waited a while before converting that to physical gold and silver (missed the bottom slightly by about $40, but I correctly interpreted that it was only falling to what turned to to be $1196 an ounce because the markets were misinterpreting that the taper was going to happen), and bought some ETFs tracking oil when the Egypt revolution was building up. United States Oil Fund LP and United States Oil Fund USO are both doing great and have risen since the beginning of summer.

So maybe it's beginner's luck, but I have a so far completely perfect record on commodities, even down to the timing. But I just don't have the time to research individual companies and try my hand at stock valuation.

... And that's it. I'm mostly an armchair economist. I'm in my junior year in electrical engineering so it's pretty time-consuming.

And lastly, look at the recent history of gold. Every time it's taken a hit and commentators turned bearish, it eventually reached a new high, so every single downturn in the last decade turned out to be a buying opportunity. Is this really the end of the bull run in gold? I don't think so. None of the fundamentals of the case for gold have changed.

I feel like one of the main risks with gold is whether you pursue a buy and hold strategy. At the beginning, I was naive and bought into the hardcore goldbug idea that you buy and NEVER SELL... but then I realized how there's been multiple opportunities to sell high and re-buy low with a good feel for the market, and I became more open-minded. But at some point in the future, I think these guys are right that one day the mining companies get shut down, and you can't acquire anymore. It's just going to be hard to tell what the day will be.
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#9

Federal Reserve September FOMC Meeting: Taper or No Taper

Quote: (09-19-2013 12:10 AM)CactusCat589 Wrote:  

It was manipulated, I described the April smash here in detail: http://www.rooshvforum.network/thread-15889-...pid504652. I think there was another barrage of futures contracts recently, but haven't looked into it.

I want to point out that the culprits in precious metals suppression are the same primary dealers who are by law the only entities allowed to act as counterparties to both the Fed and the Treasury:

One guy I find interesting who has talked about manipulation in the metals market is Ted Butler here is what he recently wrote.

Quote:Quote:

Based upon COT and Bank Participation Reports data, last December 4, JPMorgan had a net short position in COMEX gold futures of approximately 75,000 contracts. This position represented 20.5% of the true net open interest on that date (once 68,648 spread contracts were removed from total open interest of 434,416 contracts). On that date, the price of gold was $1700. While it is difficult for many (including the CFTC) to grasp the concept that a corner could exist on the short side of the market, surely no one would argue against a 20.5% concentrated share of a major regulated futures market by a single entity would constitute manipulation and a corner.

It was this corner on the short side of COMEX gold futures by JPMorgan that provided the incentive and led to the subsequent $500 decline in the price of gold into the end of June. On the historic price decline in gold over the first half of 2013, JPMorgan booked profits on their short side gold market corner (of over $2 billion in my estimate) and continued to rig prices lower in order to establish their current long side corner of 85,000 contracts, or 25% of the true net open interest in COMEX gold futures (minus spreads).
You can’t go from being 75,000 contracts (7.5 million oz) net short to 85,000 contracts (8.5 million oz) net long in an instant or in a week or a month. You can’t snap your fingers and buy the equivalent of 16 million oz of gold, regardless of whether you have the money to leverage derivatives with a notional value of $25 billion. It took JPMorgan nine months to buy 160,000 net COMEX gold futures contracts (16 million oz), at an average monthly rate of around 18,000 contracts (1.8 million oz) from Dec 4 thru today.

Quote:Quote:

There can be no question that the price pattern over the past nine months has benefitted JPMorgan immensely. A short corner on the gold market at $1700 and now a long corner many of hundreds of dollars lower. Just a coincidence or strong supporting evidence of manipulation? Either JPM is the luckiest trading entity in history or they are exerting undue control on the gold (and silver market).

If JP Morgan is now long gold and it has a history of manipulating the metals market how likely is it that they will once again be on the winning side of future price action in the metals?

Game/red pill article links

"Chicks dig power, men dig beauty, eggs are expensive, sperm is cheap, men are expendable, women are perishable." - Heartiste
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#10

Federal Reserve September FOMC Meeting: Taper or No Taper

@cacutscat589 you should also read the reports from GMO asset management. You can find all of their articles on their website. Their investment theory is based on mean reversion and asset allocation so most of the articles are in regards to global economics. Their July 2013 quarterly letter talks about Bernanke and interest rates and its affects on asset valuation.
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#11

Federal Reserve September FOMC Meeting: Taper or No Taper

Was it another thread on here that posted a memo from the Fed which stated it saw no possible end in sight for QE? I think this was last spring. I would like to read that again.

If only you knew how bad things really are.
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#12

Federal Reserve September FOMC Meeting: Taper or No Taper

Go to goldismoney2 my son. There is more of that there.. ive bought silvesilveryr between 4 and 8 and its been a ride till I had to forfeit it during the divorce
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#13

Federal Reserve September FOMC Meeting: Taper or No Taper

Quote: (09-19-2013 01:51 PM)RexImperator Wrote:  

Was it another thread on here that posted a memo from the Fed which stated it saw no possible end in sight for QE? I think this was last spring. I would like to read that again.

Yeah, QE-Infinity seems more and more likely to go on indefinitely. The Fed got itself into this mess, and now can't seem to get itself out of it.

http://www.zerohedge.com/news/2013-09-20...iment-awry
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#14

Federal Reserve September FOMC Meeting: Taper or No Taper

Quote: (09-18-2013 10:41 PM)CactusCat589 Wrote:  

Even if you the government at its word and say that GDP growth is at 2.5%, and believe the CPI accurately calculates inflation, which stands at 1.5%, then the economy only grew at 1.0%. If real inflation is even slightly higher than what the mutilated CPI states, then the economy has been contracting even with the epic trillions of dollars being spent by the federal government.

I agree with most of your article, but I believe economic growth is always nominated in real terms - GDP growth in nominal terms is circa 3.5%.

Basically, economic growth for the last 10-15 years has been, to a large extent, due to credit expansion, and now the chickens are coming home to roost. There is no way getting around paying debt except insolvency. Or cancellation, but that just leads to taking on more debt. Americans have been living beyond their means for a while. This is possible from, as you say, low interest rates combined with profligate spending, enabled by culture of rampant hedonism and instant gratification over long-term thinking.

Meantime, Obama is doing his damnedest to raise marginal costs for firms, households and expand the labor supply will minorities who will keep his Democrat occupation government in power indefinitely. It's insanity. And the Wall St. Journal is no better with a fat piece by Michael Barone today on the perks of immigration - utter foolishness and blatant ignorance from the conservatives (in name only).

The policy prescription is clear, but I have yet to see any man who will propose what needs doing:

Tariffs on trade-dumping nations
Deport illegals
Limit legal immigration
End QE and allow interest rates to rise
Tax reform to simplify the 80,000 page tax code, raise revenue, promote growth and end need for massive corporate legal departments and tax attorneys
Entitlement reform, means testing medicare, medicaid and social security
Rationalization of Federal government agencies (there are +1,200 today, the fewer the better)

which will lead to a:

Balance budget and begin a federal, state and municipal debt repayment plan so that we have at least some leeway when we need financial reserves to stop China if the time comes

A year from now you'll wish you started today
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