Federal Reserve Insider Reveals Shocking Truth Behind QE


A Federal Reserve whistle-blower by the name of Andrew Huszar has spilled the beans on the real motive behind the Federal Reserve’s QE program that began in 2009.

Andrew Huszar says that QE has been, “the greatest backdoor Wall Street bailout of all time.” Source: Andrew Huszar: Confessions of a Quantitative Easer. Andrew Huszar says, “We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.”

News flash: Americans are not stupid Andrew. What do you think Occupy Wall Street was about? It doesn’t take someone with an economics degree to follow the money and see how Wall Street was bailed out but main street was not.

Remember Michael Moore’s movie Capitalism: A Love Story where Michael Moore went down Wall Street and stopped into banking institutions that received billions in tax payer bailouts and demanded our money back?

The economic reports we tracking each month confirm what Andrew Huszar is saying. The unemployment rate has not really come down much at all. More Americans are on food stamps than ever. Median household income has been flat or has fallen for most Americans over the last 5 years. Meanwhile, the S&P 500 has gone up 140% since March of 2009. The stock prices of the big Wall Street banks have gone up even more: Bank of America (+270%), Wells Fargo (+280%), and Citibank (+230%).

From 2009 to 2010, Andrew Huszar was responsible for managing the Fed’s purchase of approximately $1.25 trillion worth of mortgage-backed securities. Andrew Huszar writes:

I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

Andrew Huszar said that a few months after QE started, the Federal Reserve had ample evidence that QE was not helping average Americans. There was plenty of evidence that QE was helping Wall Street bankers. The Federal Reserve made the decision to roll out QE2 even though they knew it would only help Wall Street. Andrew Huszar writes:

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They’d also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

You’d think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang Schäuble, immediately called the decision “clueless.”

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street.

This is not some Federal Reserve conspiracy but a real Federal Reserve insider coming clean.

The Federal Reserve has lost a lot of credibility with average Americans. At some point, it wouldn’t surprise me to see the Federal Reserve chairman having to speak from behind bullet proof glass. That’s how unpopular the Federal Reserve is with most people right now. In my opinion, the idea that the Federal Reserve helps support main street and exists for the benefit of all is an idea that is gone forever, or at least a generation.

In the video below, Peter Schiff and Max Keiser talk about the greatest ponzi scheme of our time: QE. It’s a great talk that you won’t hear in the mainstream financial media. Enjoy and let me know what you think in the comments section below.

US GDP Game Changer Hopes Dead


Could have been so beautiful… could have been so bright. The ‘Great Hope’ amongst traders on Wall Street was that the GDP report in November 2013 and December 2013 too, would show an economy so much improved that the Federal Reserve would begin tapering by the end of the year as unemployment dropped. Put a fork in it. That hope is done. Once again it’s not going to happen.

US GDP 2013

The GDP expanded at a 2.8% annual rate. Economists’ expectations were for 2% growth. Sounds great, right? Not so fast.

Economic growth picked up in the third quarter because businesses needed to restock shelves; however, consumer spending growth slowed by the most in 2 years.

fredgraph

Where would the GDP be if the calculation wasn’t changed a few months ago? It probably would be in the 0.8% growth area.

Markets dropped at market open today on release of the US GDP report.

sp-500

It’s fairly clear that traders were hoping for a better GDP report that would suggest why the Federal Reserve was talking about tapering at the end of 2013 back in May. Now it looks more and more like the Fed’s taper talk back in May and June of 2013 was just a rope-a-dope to try and deflate some of the bubble that has formed in the bond market.

Max Keiser talks about how the U.S. has hit stall speed. Since the collapse of Lehman Brothers, it has taken $18 of debt to create $1 of GDP. Check it out and let me know what you think in the comments section below.

US Government Shutdown Puts US Economy Into Recession


Incredible as it may seem, the US government shutdown put the economy into a recession according to the latest US manufacturing output report. The negative effects of the government shutdown, like ripples in water, are traveling through the economy and we’re seeing them now in the fundamental analysis reports we track each month.

Chris Williamson, Chief Economist at Markit, said: “The flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009. We can expect GDP growth to have suffered a set back in the fourth quarter, but it is too early to estimate the extent of the slowdown. It is impossible to disentangle the impact of the shutdown from other factors that might have been at play during the month, so equally impossible to judge the extent to which business might bounce back in November.”

US Manufacturing PMI Data

us-manufacturing-pmi

Any reading above 50 indicates expansion, while any reading below 50 indicates contraction and a coming recession.

Many tea-party Republicans are saying that the government shutdown was a good thing. Obviously their understanding of economics is low. Texas Senator Ted Cruz says the government shutdown and his key role in it were a success: They got people talking. (Source: http://www.dailymail.co.uk/news/article-2477581/Pheasant-hunter-Ted-Cruz-says-government-shutdown-good-got-people-talking.html#ixzz2j1onlUi3)

Putting the US economy into a recession was good because it “got people talking”. Nothing like a recession to get people talking. That’s like going to the funeral of a skydiver who died because his parachute didn’t open, and consoling his widow by saying, “Yeah, but I’m sure the view was great.”

Congress better hope that businesses bounce back in November.

TheStreet interviewed Sageworks’ Brian Hamilton and OANDA’s Alfonso Esparza about the weak economic data coming out since the government reopened.

Is a Deflationary Crash Coming?


What is deflation in economics?

Negative inflation is deflation. Deflation occurs when the rate of inflation falls below 0%. Deflation results in a decrease in the price of goods and services.

What is deflation and why is it bad?

Low inflation is good for business but if the inflation rate drops below 0%, it’s bad for business because decreasing prices mean falling profits. Even if they can borrow at low rates, businesses will not expand in a falling profits environment.

But the big negative with deflation is that it hurts borrowers by making debt more expensive to repay. Inflation makes repaying debt easier because you are repaying the debt with cheaper dollars but deflation is just the opposite. In a deflationary environment with falling prices and falling profits, it makes it harder to raise the money needed to repay debt. Businesses have trouble repaying debt because they’ve had to lower prices and thus are making less money. Individuals have trouble repaying debt because they probably didn’t get a raise. Governments have trouble repaying debt because with lower prices come lower tax revenues.

Despite what some people think, governments can’t print money to repay debt directly. They can print money to buy bonds which may eventually make its way into the U.S. Treasury but they can’t print money and directly apply it to repaying the debt because printing money generates debt. It would be a zero sum game.

Inflation vs Deflation

Inflation and deflation are measured by the Consumer Price Index (CPI). Take a look at the CPI chart below.

cpi-graph

Looking at the chart of the CPI you can see that it is closer to the 0 line than it is to the +4% growth rate before the Great Recession began.

Is inflation or deflation the bigger threat right now?

The Adjusted Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks.

monetary-base

The chart above shows that the Federal Reserve has been printing money like crazy to keep the CPI and the rate of inflation from going below 0%. In fact, the Fed has gone all in and is increasing the monetary base by more than 35% year over year. The chart below shows how, since September of 2012 when the Fed announced QE to infinity, the growth of the monetary base year over year has exploded higher.

monetary-base-percent-change

With this unprecedented expansion in the money supply by the Federal Reserve, why isn’t the rate of inflation higher and the CPI with it? The only logical reason is that deflationary pressures are much higher than what the Fed feels comfortable communicating about. The Fed is printing money like crazy and the CPI and rate of inflation are barely staying above 0%. Imagine what would happen if the Fed started pumping less money into the economy.

The Financial Times’ John Authers did an interview with Russell Napier who predicts that coming deflation will crash the U.S. economy. Check it out and let me know what you think in the comments section below.

Government Shutdown Will Likely End by Next Friday (10/06/2013)

Republicans have been planning to shutdown the government for months now in a last ditch effort to defeat and defund Obamacare. The New York Times reports, “Shortly after President Obama started his second term, a loose-knit coalition of conservative activists led by former Attorney General Edwin Meese III gathered in the capital to plot strategy.”

At a secret location, Mr. Meese and the leaders of more than 36 conservative groups signed a plan called “blueprint to defunding Obamacare,” that called for conservative leaders to push Republicans to derail the Affordable Health Care Act by cutting off financing for the entire U.S. government. “We felt very strongly at the start of this year that the House needed to use the power of the purse,” said one coalition member.

My there’s a fine line between treason and patriot these days.

government-shutdown-memeThis radical approach to controlling public policy amounts to blackmail: spend tax dollars on what we want, or you don’t get to spend tax dollars at all. It’s a stupid approach because it’s not going to work. The President and Democrats don’t need to do anything for the entire Republican party to implode with this kind of approach.

Republicans and Fox News tried to spin the argument and claim that it was Democrats that were voting to shutdown the government by insisting that Obamacare go forward. But now that the New York Times has exposed the plot by conservative groups to shutdown the government, that started over 8 months ago, it’s impossible to spin this whole government shutdown as being the fault of Democrats.

government-shutdown-meme2It’s not going to work. It was a stupid idea. The party in minority in Congress cannot usurp the authority of the Executive branch of government. Why even have a President if Congress could blackmail the President and get whatever it wants? Can you imagine the precedence this would set if President Obama capitulated? It’s never going to happen. End of story.

On Saturday, the House passed a bill by a 407-0 vote that all of the furloughed federal workers will be paid in full for lost pay during the government shutdown. Wait a minute! I thought Republicans were concerned about saving money and cutting costs. Why did they all just vote to pay government workers, for not working?

Republicans and John Boehner are looking for a face saving out. Notice that instead of demanding the repeal of Obamacare, they are now demanding talks about out of control spending in Washington. Demanding talks about how to control spending versus demanding the repeal of Obamacare are two very different things. In my opinion this means that Republican polling is showing an unfavorable public reaction towards Republicans the longer the government shutdown goes on. This means that Republicans are likely to drop their repeal and defund Obamacare position.

The U.S. Military, namely the U.S. Department of Defense, is orchestrating its own coup against the House. Defense Secretary Chuck Hagel made a surprise announcement on Saturday that he would recall next week almost all of the 400,000 civilian employees of the Defense Department who had been sent home when government-shutdown-meme4the government shut down. Mr. Hagel said the decision that “most D.O.D. civilians” would now be exempted from furloughs came after Pentagon and Justice Department lawyers interpreted a budget law passed just before the shutdown to include a larger number of workers. (Source: Hagel Recalls Most Defense Department Workers) In other words, the House can take their government shutdown and shove it. The Department of Defense got its own lawyers to basically argue, “what is IS?” If the House doesn’t like it, they can sue the Department of Defense in court. Until then, the DoD is sending over 400,000 civilian employees back to work next week.

Two weeks from now, the week of October 14th through October 18th, Congress goes on recess. It is unlikely Congress will leave town without agreeing to pay the bills as the government runs out of money on October 17th. What Congress usually does is to finish business and have no votes pending by 3 PM on Friday before the recess begins. My bet is the government shutdown will end by next Friday, October 11.

Peter Schiff says Democrats are to blame for the government shutdown too. Check it out because, when it comes to stock trading and gambling your hard earned money, it’s always beneficial to hear other opinions.

Stock Trading Strategies: Predator or Prey

Understanding time frames and how traders with different stock trading strategies interact, is challenging to understand for even experienced traders. There are many different stock trading strategies that work and this lesson unifies all those stock market trading strategies into one grand unified theory lesson.
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