Don't worry, I'm gonna go over parts of these charts individually in separate posts and explain what the heck is going.
I'm running low on time today, but hopefully this overview gives you a good idea of my stance.
The first Bretton Woods established the dollar as the GRC to allow for balance sheet expansion to finance a post-war global economy that was eager to grow rapidly. Dollars flooded the world, but so much that the gold backing was holding it back. During this period, the global banking system had developed their own "money" in the form of financial instruments to help get around this. In the late 60s policy makers realized this problem and in '71 the next Bretton Woods debased the currency. The problem, though, was that this "shadow" banking system had already grown into something organically complex and the policy makers had (and continue to have) essentially no clue how it works. So they basically just left "money" undefined and took the approach of their economic predecessors and adopted an expectation-based monetary system.
Yup, this is why you have the Federal Reserve Chairman, Mr. JPow, going on 60 minutes and blatantly lying to the world. Because that's just how bad things are. Big. Bigger. Biggest. None of this "QE" is easing the system because they simply don't understand it. A massive crack formed in the global monetary system on August 7th, 2007, and ever since then we've seen leaks in the form of market crashes and global recessions. What happened in March of this year was the crack wedging itself open and after 13 years it's finally ready to burst.
If you thought things have felt "weird" for a while now, that's because they were. This federal "stimulus" has done nothing more than allow Reaganomics to get stuck at the top, causing this absurd consolidation of wealth and failing middle class. And we've had it best in the world here in America because of the dollar shortage.
In the next economic-based sections, probably starting around Part 5ish, I'll go over the mechanics of this colossal bubble (i.e. Eurodollar, Petradollar, Credit, Rehypothication, Offshore Repos, etc.)
Finally posting some actual chart analysis in a little here, I swear.
@ProfitHarvest, I've been genuinely curious to see how JPow is planning on dealing with this for a while now, and well ... they've quietly stashed away like 1.5T into the Treasury General Account over the past month or so, which to me says they're expecting something huge to happen soon. Some more bear snacks for ya to much on lol
Peterson
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@kaxo1, sneaky Bastards , that's how they operate .
Agree with most of what you said. However you skipped a lot of details. It's like going directly from Chapter 1 to Chapter 30, and skipping Chapters 2-29. Guess you were trying to keep it short and simple. Not a bad things.
So the important part is: What happens next? Not a long-drawn out history lesson on Breton Woods. Just skip to the final analysis.
Here's my two cents. The dollar deflates. Stocks go up. Bonds come down. What the Treasury Dept. has done with this hidden deficit spending is to kill the bond market. Unfortunately, Treasury doesn't have enough money to kill the bond market. The bond market is too big and too well managed. The federal deficit is peanuts compared to the bond markets. Instead, what happens is bond go down slightly and the dollar crashes hard. We get inflation, probably in the 6-8% range. The ratings on US Treasury bills becomes B or BB. Everyone sells their Treasury Bonds. And Treasury bonds pays zero percent interest. Because the government can't pay the interest on the US Treasury bonds. There is a massive cut in the US Budget. The US budget gets chopped in half. Gold rises. Bonds return to normal. Stock fall back to their normal values. We close several departments in the government: Big chunks of Intelligence Agencies and Military Procurement, Farming program, Oil and Gas programs, Housing Agencies, Small Business Administration, Securities and Exchange Commission, Department of Education, Dept. of Veteran Affairs, Dept. of Agriculture and the Dept. of Health and Human Services.
Otherwise, the US Dollar and US Treasury bonds go to zero. And the government must raise taxes.
kaxo1
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@tradeBob1 I’m sorry but i just don’t see that happening at all. There’s absolutely no way the dollar sees inflation as the GRR. The fact that there’s such a drastic shortage of dollars around the world that it’s been causing repeated crashes and recessions, all while holding back global economic growth, just speaks for itself. The Japanese did somewhere around 35 rounds of QE starting in the 90s and they never once saw inflation. They saw the exact same problem that we’re having since 2008: deflation, stagnant economy, and inflated asset prices. If you have to do it more than once then it didn’t work. We’ve done it here 5 times now (4 by Bernanke alone) and saw no inflation. The Fed’s stated reason for why they didn’t think it worked in Japan is that they just needed to be more “loud” about it to make sure consumers believe it, but that should do it, right!? Nope not at all. These imbeciles have no clue what they’re doing but the panzi scheme is that the big money in media is able to push their agenda and keep this failing charade churning. The reason the bond prices are so high is because the main actors in the private banking system know just how fragile and likely to fail it is, so they are will to pay for the most liquid instruments in the world. The reason corporate bonds yields are low right now is for the same reason, not for risk-on behavior, but because of their liquidity. Again, the same with gold, it rallies during deflationary periods. Every financial market besides equity is pricing in not only deflation, but a long and hard recovery no inflation to speak of. Heck, even the equity market is pointing at that, as the main reason why FAANG has such a ridiculously high market cap now is because fund managers only want to hold shares of the most liquid and safe companies in the world.
TheMarketDog2
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@tradeBob1, I cannot more than agree with @kaxo1 answer...
1) about inflation: I don't see that happening JPN and EU are pupping money in the economy since years now and it didn't create inflation. Money devaluation is a prisoner game, it's very simple, everybody always lose as you would only win if you are the only one doing it... if everybody works together to prevent it it's working, but no one want to be the silly one not doing it.
2)about inflation again: let's check the 3 major trading partners of the US - CNY,MXN,CAD: their currencies are more under pressure than the USD
3)inflation is about prices.prices are about offer and demand. demand is about the money people and companies have in their pocket... so yes demand is about jobs... which are scares now.
offer is about what the companies are ready to supply. so either they scale down laying off people (i.e. killing the demand side) or they hope for other companies to go bankrupt... at the moment the odds are not really in favor of long term inflation ( you will tell me the report shows the inflation was 0.6% lat month in the US, but this is mainly due to food prices which are up 10%), not only this is bad for people, but it's also bad for all the other companies as this is a share of people's budget not going to other type of consumption
4)now let's look at the taxes side : yes obviously someone will have to pay for this so you can expect (Biden? given the current odds) to increase taxes, which is surely bad for equity returns...
5)let's talk about equities prices. investments are a game of trade off. I've put EUR and JPY in the chart as you need to keep the main financial markets in scope. I will start with a small example. in june I sold of my stocks for Euro gold and silver. to my knowledge in EUR in am +10% vs the market not so much... if really the USD as to crash to a dxy ( dxy is like USD vs EUR and JPY) of roughly 20%, everyone should switch to anything not denominated in USD(i.e. forget the DJI & S&P)
6)bonds, why are bonds so high? they simply price a future recession at 100% chance. that's why they are so high.... bonds are trying to tell us something. you have people buying 100 years austrian bonds at a 0.6% yield.... it's telling a story
7)Equity flows are negative since jan 2019. this is also telling a sttory. the biggest outflow in 3 months was last week. you're going to ask , how is it possible that the market is going up? short squeezes and market orders. nothing more stupid than a market order. I mean... just put your oder 1% lower than the current price and with intraday volatility you would have your stock but the army of zombie retail investors are too much in a rush of buying for this??? imagine you would miss on Kodak,Nikola or AAL shares??
PS: sorry for the typos , I had to type this quickly
TheMarketDog2
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CNY is the blue one, MXN the orange one and CAD the red one
kaxo1
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@guibl, Thanks for putting the time into the comment man, agree with everything you said. We're currently in the eye of the storm right now and people are cheering success, which happens every single damn time haha it's absolutely insane, but that's what you get when the world leaders have chosen to take an expectation-based approach to solving a money problem. It's legitimately scary though the more you look into it, and it's why contrarian indicators have been so effective over the past several decades and only gotten stronger. Jeff Snider puts it perfectly: the Fed and CBs balance sheet doesn't tell you anything about the financial system, it just tells you what the Fed and the CBs are doing .. and when you realize that their actions are gimmicks to fool consumers into thinking what they want them to think, then the bigger the Fed actions means the bigger the problem. So seeing what the Fed and CBs are doing should be a massive alarm that things are very, very, bad right now.
To touch on each of your points, just for the sake of already being on a rant lol:
1) The problem is that they don't understand how the *actual* global financial system works; whereas to them, they are at the center of the monetary system and have complete control over it, in reality, the system broke down in 2007 as a direct result of the major financial institutions realizing that the Fed really doesn't have much control at all, and instead it's the banks that are at the center. This whole century-long circlejerk of Keynesian economics is almost entirely to blame, too, because not only does it get the basic understanding of interest rates and bond yields completely backwards, it has continually pushed further power and intervention by the Fed, whom, using these backward economics, have actually been either the primary or secondary cause for basically every recession since the 20s and have now left us stuck in a 20 year long "depression" (only for the bottom ~80%). QE doesn't work because banks don't want to lend, it's that simple but it never mattered in the first place because the point of QE is mainly to just be a signal to the financial media, wealthy investors, and consumers to buybuybuy. We're on a scary road to Orwellian-style government control, manipulation, and systematic oppression.
2) Global trade is done in dollars, but financed with "dollars". Idiotic bankers of the 90s and 00s went wild with "dollars" and now there's way more on balance sheets than *actual* dollars that exist, which is causing this shortage, and the lack of federal jurisdiction in these offshore financial hubs makes it impossible to track, measure, and solve this mess, so we're left in this state of slow perpetual unwinding that's been exhausting every country in the world of economic growth. Just another reason why the Fed is completely useless in this situation.
kaxo1
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3) The financial media and leaders are gonna be exploiting these price numbers (have been already) to push their narrative, where in reality, due to the extreme situation with shutting down the economy, things are completely out of wack throughout the supply chain, so pricing is going to fluctuate a lot until things stabilize. Initially prices were constant, because businesses expected to just open back up in a month or so and get right back to it. Prices have started to rise though because of the impact on the shutdown in production, which has left an enormous shortage in inventory. Now that production is back online we're seeing those prices rise as well because of the shutdown and layoffs in the raw materials side of things. Once we're open for a bit, then businesses, factories, and raw production are all going to be adjusting their expenses appropriately.
4) The taxes situation is going to be messy in my opinion, and not at the federal level. There's already been emergency meetings at the state and local level for funding, and it's not a priority for the Treasury right now unfortunately. In Kentucky, especially the cities, several local governments have mentioned that taxes are going to be raised significantly as a result, and while necessary, that's only going to exacerbate the problem and push more people out of the area. Many foreign governments are going to be in a much worse condition, and I told my friends back in April that I'm expecting a huge sovereign debt and currency crisis probably some time early next year, maybe even sooner.
5) Tbh, while I'm pretty confident in my economic and monetary expectations, I have no clue how to approach it from an investment standpoint, and I think that's how a lot of people are right now. I've sold most of my generic stocks over the last several weeks and am waiting for another repo market explosion either going into September or December so I'm trying to be well-diversified and hold a variety of defensive and crisis equity like vol, bonds, UUP, metals, etc. and will likely take a speculative short position on corporate bond etfs if it starts to breakdown or as we approach the crunch points. If things do start to blow up again, despite what JPow and the financial media are saying, I think the most important asset to have is just physical USD. This also hinges on the Fed not changing the FR Act tho.
6) Yup, simple. Bonds are never wrong, cuz it's the people *actually* at the center of the monetary system (not the CBs). All it's been signalling for decades now is a massively growing liquidity problem, and now it's at the apex.
7) Yeah that's the one that's confusing to me. I've heard that the outflows can be misleading because it could be a result of foreign institutions purchasing the equity, which gets written down as an outflow here but it's still on balance sheets overseas, which lines up with the US equity hoarding in Japan and other SWFs. Could be option dealers bidding up prices though