The Greatest Illusion Ever
Faced with a total destruction of your economy and way of life what would you do ? Anything is the answer.
Whilst US Fed chiefs claimed to have missed the GFC, a team one which is there to prevent rapid falls in asset prices has been around for years in the USA.
Similar teams in different countries have also been there to protect their nations and citizens interests. Hong Kong during the Asian Financial crisis purchased massive amounts of shares to support their markets in troubled times. It was the correct move then, it has been the correct move of many nations over the centuries !!! Yes centuries to protect their citizens interests and as such nothing new, or conspiracy at all.
At times, drastic measures need to be taken.
In 2010 when questioned US fed chiefs and the incoming ones claimed to have no perception of the upcoming GFC or its causes. This is contradicted totally by the fact, the US team called the plunge protection team was dormant for many years, it had its first meeting in the Oval Office in January 2008, barely before the US markets had started to fall and they still are in operation in 2013.
Here is an article about the first meeting
And here is something about more recent meetings and a lot has been removed, Dr Pippa Malgrem sat on all meetings up till 2013.
So nothing new, the market is NOT as free as we thought and the music has continued until 2013. It is a dirty float and again not too much a surprise.
Governments roles are to protect their economy, their markets and their citizens.
I was going to produce one massive paper but it became too long so I will split it into bite sizes and actually start it with a preface you will not believe and then see if you do at the end.
First paper just an associated one was A Nation on Food Stamps and it is at the end of this first part.
Wordy and long, it Has two key points.
One is that QE by the US fed give US banks a totally unfair advantage vs banks globally. It makes them appear to have more liquidity, appears to make them have more capital. Has removed the need for them to raise capital via stuffing them with liquidity.
Second is that it has stuffed them with ultra cheap funding, removed the need to raise capital, purchased low liquidity bonds off them all adding to profits and at a minimum the banks in the USA have been given, handed profits of 150-300 billion each year post 2008 !!
This was the plan, this was the idea. Its increased earnings on this subset of the whole of the US market by 50% .
It was intended, but it WILL END.
Both are an illusion.
Imagine a nightmare at your fingertips.
A credit market in total collapse a potential disaster worse than 1929-32.
What would you do ? As a nation ?
Anything, is the answer.
Extraordinary measures were needed then. The only way to avert disaster was to provide liquidity and the other measure quite clearly stated was to re inflate asset prices.
It did not matter that asset prices were 2-3 times what they should have been in 2007. It seems that we are back there it doesn't matter in 2013.
So what tools can we use ?
Any. From changing perceptions via economic numbers, to QE which stuffed the crucial financial system and banks with liquidity and cash and then the illusion of profits, not quite an illusion but things called super profits created by an action which is artificial and eventually will go away.
What else ? Anything and I mean anything.
It was needed to stop the 2009 lows, the world did go to the total brink of disaster. Funds stopped flowing and asset prices tumbled, bond were becoming worhtless and this needed to be stopped.
There was a very real and crucial need for these actions in 2009 and 2010, less so 2011 and 2012-13 its got nothing to do with any crisis. It has become like a drug. US equities are 60% higher than then. US feds plan to stimulate the economy via re inflating asset prices was not working late 2012, so the doubled the efforts and purchased 85 billion bonds each month late 2012 till today. It actually blew up in their face. Undaunted they continue.
It is again the role of the government and central bank to take are of the interests of its citizens.
The paper “A Nation on Food stamps” actually questions the interest that are being served.
What at the end of these series of posts will leave you wondering about reality vs perception.
What is real, what is not real. There is out of the 2,250- billion GROSS profits in 2013 of the USA corporate side a question mark over 150 billion in the banking sector. US and UK banks vs EU or Austrlaian have been given a green light and hand up via their central banks both in liquidity, profits and capital raising measures which is unprecendented in modern times.
It has destroyed the US Fed reserve which has just lost 300 billion. Action and effect !! There is a price to pay, In investment markets NOT always equal to the action.
If I was to say of the 2,250- total corporate profits in the USA and the 1,850- Net profit after tax in 2013 the real and actual number is below 1,300- NPAT or 33% lower you may think I am mad.
I am mad in one sense of the word, not in the other. The USA faced with total collapse took extraordinary measures and everything was and is on the table. Economic releases, if you believe US unemployment is 6.8% with 30 million more on food stamps since 2002 vs 2013, and 11 million, soon to be 12 million removed from the employment numbers post 2008, you may as well stop reading.
These measures have taken a toll on both the central bank, the governments finances in tatters and like most price-fixing schemes, because that is what it is, price fixing, they eventually come to an end.
If you throw an apple up in the air, gravity takes hold and eventually it falls. What the last 5 years has seen has been unprecedented intervention by governments and central banks, not in the EU or Australia but UK and USA to alter your perceptions and investing habits. Long term it will be for naught.
I will just post the illusions and see if you can spot the magicians tricks ?