Assorted Nuts and the Nuts We Need ~ The Risk Averse Alert

Wednesday, June 08, 2011

Assorted Nuts and the Nuts We Need

Far be it for little old me to suggest Pimco's Bill Gross does not fathom the dimension of the trans-Atlantic financial system's insolvency when he claims there will be no QE3. Last year's sudden drive for QE2 in reaction to the European banking system's threatened collapse — this instantly ending all contemplation of a Fed exit strategy, which had been all the talk before the so-called PIIGS came a squealing — all too likely serves as a template for helicopter drops still to come as the situation surely will demand.

Which thought dovetails nicely with my promised refutation of David Goldman's "Top 10 Reasons not to Panic." Not intending to critique his every bullet, the flaw in his first point will serve that better cause advising extreme prudence at this moment, the likes of which, indeed, offers plenty enough reason to feel no shame in panicking.

10. Europe’s problems are overblown...

Isn't this about the same thing Alan Schwartz was saying two days before his firm, Bear Stearns, was absorbed by JP Morgan Chase for a song and a fat subsidy from the Treasury and the Fed? Oh, and assets of the soon afterward failing Lehman Brothers were so highly correlated throughout financial institutions across the globe that even a chain reaction collapse threatening a new Great Depression might have precipitated were it not for the TARP swindle, yet entire European nations whose financial situation is no less hopeless than was Lehman's do not present a similar systemic threat due to a high correlation of affected assets?

But wait, you demur, what about all the bailout mechanisms already in place? Are these not well suited to handle any further threats to the financial system?

Goldman already answered this question in the negative on May 3rd, 2011 when he wrote "Osama bin Deflation and the Money-Credit Paradox." The chart he presented is reproduced below...

Behold the face of hyperinflationary breakdown, where monetary instruments (in this case M2) accelerate in an increasingly disproportionate fashion in relation to financial assets (i.e. loans and leases at commercial banks), which in fact invariably collapse when a point of no return is reached.

Assuming the Fed and Treasury employ the same, insane policy responses of the past few years in reaction to impending stresses, such as seems all too likely, the disparity seen above will only widen. The volatile cocktail served up over the past few years will grow all the more explosive as the cost of production goes through the roof (fueled both by the surge in monetary instruments increasingly seeking return in liquid physical assets, rather than financial assets, as well as by a shortage of inputs, this being caused by an ongoing shutdown of physical capacity whose operation no longer is feasible given collapsing margins caused by the just indicated ever-increasing demand for liquid physical assets).

So, in answer to yesterday's closing riddle asking how it is, given a 14% increase in crude oil demand since Y2k, that the price you pay at the pump has increased by nearly 300%, the never talked about factor of physical shutdown of refining and distribution capacity most certainly is playing a part. Likewise, of course, is speculation too playing a role, this being driven by liquidity now largely being provided by the nut jobs at the Fed and Treasury in response to the collapse of the Wall Street - City of London shadow banking system.

The two-faced Bernanke did say yesterday that, per food and energy inflation, it has been a matter of supply not keeping up with demand. Yet isn't this the same guy who also claims inflation is being kept in check by excess supply?

You need not wonder why jobs are so tough to come by in our post-industrial scrap heap. The Fed and those well-healed swindlers who pull its strings very well have positioned themselves to grab many a prized asset on the cheap, consolidating control over these into fewer and fewer hands. Per the extreme social and economic regimentation such intended policy produces, witness fascism in its purest form.

Once you grasp this dynamic by which we presently are trapped, you can quickly run through Dave Goldman's other nine points, and punctuate each and every one with the word "sophistry!" There is every reason to panic.

And to my readers in Congress: if you do not see why H.R. 1489 (Return to Prudent Banking Act of 2011) must be immediately made law, then show us your crotch, because the nuts the average investor needs should be there for all to see, and not between your ears.


We presently see in the NYSE Advance-Decline differential an improving underlying technical state coinciding with the market's decline so far this month, and this is much like occurred at previous inflection points during the formation of wave (c) off late-June 2010 bottom. Thus does the end of wave 4 of (c) still appear at hand.

The above circled time frame coincides with formation of wave b of 4, whose unfolding was during the market's advance from November 30, 201o through February 18, 2011. I imagine some of you who are familiar with the Elliott Wave Principle might dispute the wave count I have assigned to wave 4 of (c), particularly as pertains the market's advance during the above circled interval. Yet you might recall that, one characteristic of "b" waves as detailed in the Elliott Wave Principle is the manner in which the analyst is left to conclude "something is not right." Well, given the market's decided advance during presumed formation of wave b of 4, would you not say coinciding NYSE Advance-Decline differential readings fit the bill?

Fast Money
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