timing is everything

WASHINGTON (AP) — In his final public appearance as chairman of the Federal Reserve, Ben Bernanke took a moment to reflect on the 2008 financial crisis and compared it to surviving a bad car crash.

During an interview Thursday at the Brookings Institution, Bernanke recalled some “very intense periods” during the crisis, similar to trying to keep a car from going over a bridge after a collision.

The government had just taken over mortgage giants Fannie Mae and Freddie Mac. Lehman Brothers had collapsed. He recalled some sleepless nights working with others to try and contain the damage.

“If you’re in a car wreck or something, you’re mostly involved in trying to avoid going off the bridge. And then, later on, you say, ‘Oh my God!'” Bernanke said.

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An innocent car crash Mr. Bernanke? Just an accident? I guess that’s one way to look at it. There is another. How about getting so drunk that you drive your car into a pole.

Of course, the above is an analogy for using entirely too much credit to propel our financial system and our underlying economy right after the Tech crash. As we know, that led to the housing bubble, the stock market bubble and the credit market bubble that all blew up in 2007-09. Now, you can’t blame Mr. Bernanke for that. For the most part, another “brilliant economist” under the name of Mr. Greenspan was responsible for the financial collapse we have all suffered during that time.

You can, however, blame Mr. Bernanke for what happened between 2007 and today. It seems like he took Mr. Greenspan’s playbook, squared it and then multiplied it by 100. By pumping a tremendous amount of credit into the system since the market meltdown of 2007-09 Mr. Bernanke upped the ante for any reasonable resolution to our current financial issues.

Make no mistake………..the current stock market, real estate and economic recovery has very little to do with the underlying fundamental economy and everything to do with massive infusion of credit into the financial system by the FED.

It is a speculative illusion at best. When the credit card is finally maxed out, there will be hell to pay. Based on my mathematical work we are just a few short months away from the start of the bear leg. Get yourself ready.

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November 26, 2013November 26, 2013

Hey Bernanke, Thanks For All The Drugs

BusinessWeek Writes: Thanking the Fed, Reservedly, for Investors’ Bounty

Don’t look at me like that—Walgreen (WAG) went full-yuletide in August. In any case, should you find yourself looking at your 401(k) for the first time since the Subprime Swoon, be Thanksgivingukkah-grateful for the extraordinary largesse of this Federal Reserve.

Thanks to outgoing Fed Chairmen Ben Bernanke and the nominee to replace him, Janet Yellen, and their colleagues taking down interest rates to near-zero five years ago and keeping them there—on top of the Fed’s nearly $4 trillion of creative asset purchases—investors have enjoyed the restoration of more than $13 trillion in U.S. equity market value. That’s called multiplier effect. And it’s also called remorse, if you were one of the record numbers who bolted stocks altogether and are scrambling to get back in now, after indexes have more than doubled. It’s also called financial repression if you’re a saver having to eat negative real rates on your hard-earned cash.

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I have no words. You have got to be f#&*$ kidding me. I don’t know how many times I have to say this, but thanking Bernanke or the FED would be equivalent to thanking your drug dealer for getting you hooked on crack cocaine, or thanking a hooker for giving you AIDS or thanking God for helping you get home again while driving drunk.

All of these things might feel good at the moment, but they will eventually catch up and kill you. What most people do not understand is that by pumping a tremendous amount of money into the economy over the last 2 decades, the FED has created bubble after bubble in various asset classes. All while undermining the overall economy.

The stimulus works great until it doesn’t work anymore. We are at that point. With massive amounts of credit flooding the system, the velocity of that money is having less and less impact. When the tide turns, there will be hell to pay not only for the people who are directly involved in the scheme, but for everyone. Not only for the US Economy, but now for the global economy. Everyone.

The sad part is, all of this was preventable is we had the fortitude to stick to sound economic principals. Instead we have a bunch of whack jobs on every level of our government whose sole purpose is to max out our credit cards and kick the can down the road. The upcoming bear market of 2014-2017 will make all of this very clear.

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October 15, 2013October 15, 2013

Who Else Wants A Huge Pile Of Cash?

BusinessWeek Writes: Corporations Are Swimming in Cheap Cash. So Why Aren’t They Investing?

The difference is that back then, businesses were actually spending that cash they were able to borrow so cheaply, buying equipment and building factories and hiring workers. Today they’re just hoarding it. The pile of corporate cash on the balance sheets of nonfinancial companies has grown to $1.48 trillion, according to Moody’s. That’s an 81 percent increase since 2006. “Corporations are flush with cash coming off a huge profit cycle,” says David Rosenberg, Rosenberg points out that despite this abundance of cheap money, “we’re in the midst of one of the weakest investment cycles ever.”

Until Congress parts the clouds and gives businesses some bit of certainty as to spending and tax rates, let alone an assurance that the U.S. won’t default on its debt and the government won’t shut down, expect more of the same. Slow growth, weak demand, and more and more cash being piled onto corporate balance sheets.

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The article claims that the lack of US fiscal clarity is the biggest culprit behind corporations not investing their huge cash piles and/or borrowing at cheap rates and investing it.

I respectfully disagree. First, the notion of huge stockpiles at corporate level are highly questionable at best. Now, in terms of borrowing and investing, the issue has nothing to do with US Fiscal clarity and everything to do with the fact that everything is significantly overpriced and there is technically nothing left to invest in.

What I mean is, due to a flood of readily available cheap capital over the last decade, most corporation have already heavily invested in and have streamlined the majority of their production capacity. When most of them look around today, there is literally very little for them left to do or invest in. This is the synopsis of the problems I have been talking about here this entire time.

Too much credit, overcapacity and slowing velocity of credit. Even though credit is readily available it will have even less impact on propping up our economy going forward. Just another falling vital sign of a dying patient.

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