finance – Page 18233

Will We Hold It Wednesday – The Lies We Tell Ourselves

S&P 1,886 – a new record!

Sure only 86M shares were traded on SPY (see Dave Fry’s chart), which is about what’s usually traded on a holiday but why should we let that bother us? As Dave noted in his post last night:

SPY 5 MINUTE

[Chart by Dave Fry]

Predicting market movements is a waste of time even for the best strategists. This is a period when following technical systems pays off, especially remaining disciplined and systematic. This includes having cash available to move as conditions change. It’s fun to predict the future marked by witty and amusing comments. That’s just entertainment.

Following trends is no different than following the money. Over the past 5 years this has led to following gifts of liquidity from the Fed and other central banks. A more dangerous method is to guess central banks next move. Janet Yellen has already laid her marker down the Fed will continue to be accommodative for a long period ahead. Bulls interpret this as bullish for equities and being nobody’s fool, they’re just going with the 5-year historical trend. The ECB is expected to provide more stimulus at its next meeting Thursday. The PBOC is expected to do so as well soon even as the finance minister has said they wouldn’t. Bulls don’t believe him for now.

With bulls believing the “all clear” has been sounded by Yellen, bulls can return to a “bad news is good” modus operandi enjoying or ignoring bad news.

SPX WEEKLY

[Chart by Dave Fry]

As pointed out by Zero Hedge, “While QE may have tapered to a “measly” 55 billion per month, on just the first day of April risk assets experienced the additional benefit of over two full months of QE injected into the stock market in one single day!” And now you know where yesterday’s buying deluge came from.”

That’s right, I showed you the chart yesterday that highlighted the $250Bn worth of “reverse repo” handed out to the banks on the last day of the month to goose the markets and, unlike Jan 1, they didn’t drop it back to $50Bn the next day. Instead the Fed fed another $113Bn to the Banksters yesterday and, despite the fact that it was a slow day, they jacked the indexes right back to record highs again.

Does it sound like a conspiracy theory? Watch Jon Stewart’s interview with Michael Lewis, which begins at about 8:45 in this episode:

Yes, it’s RIGGED. It’s rigged and it takes the cooperation of EVERYBODY involved to rig it. The SEC has to look away, your broker has to lie to you that you are getting the “best executions” while they are SPECIFICALLY selling better executions to HFT houses. The media has to cover it up as well, lest the consumers get outraged. That’s why the FBI has launched an investigation and not the SEC but, at this point, why trust the FBI?

Certainly you can’t trust the media. Did you even know that there was just an oil spill in Lake Michigan? Yes, it’s BP again. That’s OK though, turns out Bayelsa has 40 oil spills per month – thank goodness they don’t have them nasty Government Regulators getting in the way of progress in Nigeria! I love this quote from AllAfrica.com:

Sadly, the very existence of the people depends on the environment, which is being destroyed with impunity due to oil and gas activities, crude oil thieves and illegal refinery operators.

This is what the World looks like when you let the energy companies “regulate themselves.”

The “news” you get is manipulated by the same corporations that are committing these crimes. I was watching Bloomberg this morning and I saw something outrageous. Lufthansa’s pilots are striking in Germany and, as they usually do, the networks like to pull random strikers from the crowd to ask them questions, rather than allowing the actual leaders of the unions to speak on TV. This way, they hope to present the striking workers as radicals with unclear agendas and hopefully catch them saying something that damages the cause, rather than interview the people who have been elected to speak for the group.

But that’s not enough for Bloomberg, they actually went out and found a guy named Streicher to interview but the joke was on them as he held his own quite well. That wasn’t what I thought was outrageous – what was outrageous (and I hope the boys at the Daily Show pick this up for me) was that the pilot knew enough to talk into the camera and the guy from Bloomberg said to him “no face me.” It’s not in the clip but I swear that’s what happened live on TV. Obviously, not facing the camera makes him seem less sincere – this is just one of the little ways the corporate media manipulates the message for you!

Why should this matter to you? Because the same kind of blatant manipulation goes on in the broader market and, if you are considering buying stocks at record highs or bonds that pay you record low interest rates – you have to consider AT LEAST the possibility that they are being manipulated and the prices you are paying or receiving are screwing you and benefiting the manipulators.

The Nikkei shot up last night not because anything good happened in the market (and yes, we are short the Nikkei), but because the Yen was weak and, best of all, Japan’s $1.25Tn pension fund will be handing money to Goldman Sachs and other Banksters to put into the stock market – the same plan the Bush Administration had for our Social Security funds in 2006 – that would have worked out terribly, wouldn’t it have?

FXY WEEKLY

[Chart by Dave Fry]

There were no Democrats to block this evil scheme to loot the pensions by the Banksters and Conservatives in Japan, so off the money goes with the brokerages each expected to invest between ¥200 billion and ¥400 billion, concentrating on companies with high return on equity, according to the Nikkei. The WSJ is, of course, ecstatic with this idea – the author of the article couldn’t find anyone with anything bad to say about it! The headline says the Nikkie could pop 5% on this news – WOW!

And it would be WOW! if the same news hadn’t already lifted the Nikkei off the 14,000 mark in November, when the idea was first put forth by Abe. We discussed it in our Member Chat Room that day and decided to go long on the Nikkei and EWJ at the time. Now, at 15,000, the Nikkie is not 5% higher but 7% higher and it’s time to flip short – we didn’t change our position – the Nikkei simply overshot the mark.

Warren Buffett made a great point of warning us about the trouble facing public pension plans in his recent letter to shareholders – just one of the many problems both the market and the Mainstream Media are choosing to ignore – so far.

Click here to try Stock World Weekly Free.

via Zero Hedge http://ift.tt/1orsUHW ilene

Lewis Explains The Casino: “Why Are You Even Arguing” That This Is Not Rigged?

Round 2 of the HFT vs Reality death match just took place on Bloomberg TV. Once again the clear winner was Katsuyama and Lewis version of the real world as Manoj Narang finally lost all credibility with the mind-0bumbing comment that “speed matters less in today’s market than it has ever mattered.” But the Tradeworx CEO was a background singer compared to Michael Lewis who explained in his clearest analogy yet how the casino works and then devoured the anchor’s constant efforts to play down the “rigged” market perspective… “it’s very clear that people are being front run in the market… so, why are you even arguing about this?”

Plenty of good stuff in the clip but this little exchange summed up the problem perfectly…

Lewis explains the game, exposes the rigging, and slams the mainstream media’s “defense” of this…

LEWIS: So of course the tourists get fleeced all the time in the poker games, because they don’t know the deck is rigged. The poker players pay the casino a cut of what they make. The casinos, operators, pay the tour group – the tour group company money to bring in the tourists.

So in this case, casino’s the exchange, the poker players are the high-frequency traders, and the tour group operators are the banks and the brokers that handle the stock market orders. And I think the analogy is pretty close. So is that rigged? Is that a rigged game? I think it is a rigged game.

SCHATZKER: Well, it’s rigged only inasmuch as…

LEWIS: Why are you so invested in the idea this is fair? Why are you even arguing about this? It’s so clear.

SCHATZKER: Me?

LEWIS: Yes, you seem to be. I mean, it’s very interesting. But you seem to be – you can see, it’s very clear that people are being front run in the market. There’s plenty of evidence in the book.

SCHATZKER: Their orders are being anticipated…

LEWIS: Anticipated and run in front of, that’s right.

Shocked…

And then Manoj Narang comes in… and the long words surge and the credibility plummets… “there are so many assertions that are provably false… oh my gosh so many…” crickets… and then finishes off all credibility with “speed matters less in today’s market than it has ever mattered.”

via Zero Hedge http://ift.tt/1pOlMmi Tyler Durden

Dow Fails To Hold 2014 Gains As Treasury Yields Hit 7-Month Highs

Biotechs ended positive but for the 10th day in a row saw the early pump, dumped (as did a number of the momo names). But the big news is the Dow getting back into green for 2014…and then failing to hold it! Trannies and the S&P both hit new record highs. Treasury yields continue to press higher with 5Y now at 7-month highs (testing 1.80%) as 30Y yields are up 11bps on the week. The USD rallied modestly all day (ahead of tomorrow's hope-strewn ECB meeting) but ended unchanged on the week but commodities were mixed with general flatness interrupted by significant spikes in gold and silver around 8amET. Copper faded during the US day session. VIX was slammed under 13 into the close but faded back higher into the close.

It seems odd that Yellen's speech as seen as so amazingly dovosh and yet Bond yields have done nothing but soar since then..?

For a moment there the crescendo of self-congratulations on CNBC when the Dow managed to get green for 2014 was deafeneing as they cpuld not understand how it was possible it took over 3 months… BUT – it failed to hold…

And the last few days impressive smash higher have almost got builders and discretionary into the green..

Nasdaq lagged on the day but the whole jump appears to have been engneered by a massive BTFD program off the 100DMA…just too easy eh?

As Biotechs pumped and dumped once again…

5Y yields at 7 month highs…

but 30Y has been the underperformer this week..

Gold an silver had a decent spike early on held most of the gains. Copper fell all day after that and oil ended flat on the day….

Charts: Bloomberg

via Zero Hedge http://ift.tt/1pO4Cp1 Tyler Durden

Obama Administration Admits Use Of “Warrantless Searches” Of US Citizens

Just over a month ago, we reported on the Supreme Court’s ruling that police may search a home without obtaining a warrant thus denigrating the Fourth Amendment to the funeral pyre under the Obama Administration’s totalitarian might. Today that decision (and the end of the 4th) were confirmed when the country’s top intelligence official confirmed in a letter to Congress that the Obama administration has conducted warrantless searches of Americans’ communications as part of the National Security Agency’s surveillance operations. While efforts were made to suggest agencies do not deliberately track Americans’ emails, phone calls, and online activity without a warrant, as Sen. Wyden notes, “the facts show that was misleading.”

Via AP,

The Obama administration has conducted warrantless searches of Americans’ communications as part of the National Security Agency’s surveillance operations that target foreigners located outside of the U.S., the administration’s top intelligence official confirmed in a letter to Congress disclosed Tuesday.

These searches were authorized by a secret surveillance court in 2011, but it was unclear until Tuesday whether any such searches on Americans had been conducted.

…

“Senior officials have sometimes suggested that government agencies do not deliberately read Americans’ emails, monitor their online activity or listen to their phone calls without a warrant,” Democratic Sens. Ron Wyden of Oregon and Mark Udall of Colorado said in a joint statement. “However, the facts show that those suggestions were misleading, and that intelligence agencies have indeed conducted warrantless searches for Americans’ communications.”

We are sure this will help galvanize domestic and international sentiment against the Obama administrations policies…

Wyden has pressed the administration on whether these searches on Americans have occurred. In a March 28 letter to Wyden, James Clapper, the government’s top intelligence official, said the NSA has searched for Americans’ communications within information it collected when it targeted foreigners located outside the U.S. In his letter, Clapper also pointed to a declassified document released last August that also acknowledged the use of such searches and stated that these searches were reviewed, and there was no finding of wrongdoing. It was unclear how often these searches are conducted.

Documents disclosed last year by former NSA systems analyst Edward Snowden showed that the government collects mass amounts of data from major Internet companies such as Google, Apple, Microsoft and Facebook through one of its programs designed to target communications of foreigners located outside the U.S. The government is not allowed to use this authority to collect Americans’ communications, but conversations of innocent Americans are collected inadvertently. When this happens, the NSA is required to take certain measures to hide the communications of Americans that have nothing to do with foreign intelligence.

In 2011, the government sought and received approval from the Foreign Intelligence Surveillance Court to search for Americans within the communications it already possessed through its collection of conversations of foreigners outside the U.S. Such searches would only be permissible if there were a foreign intelligence purpose.

…

A Back-Door Loophole around the Constitution!

Wyden, Udall and other civil liberties advocates call this type of search a back-door loophole in the law that governs surveillance of Americans.

“If a government agency thinks that a particular American is engaged in terrorism or espionage, the Fourth Amendment requires that the government secure a warrant or emergency authorization before monitoring his or her communications,” Wyden and Udall said.

The Obama administration contends the searches are legal because they are searching information they lawfully obtained.

As we subtly suggested before,

Well there goes the fourth amen… oh look, over there: it’s another all time high in the S&P 500. On paper, those who hold stocks have never been richer. Everyone else, barricade your doors, and the police come knocking, don’t even bother answering – they will come in anyway. And also prepare your guns for return to the government: that particular “constitutional” amendment is the next to go.

via Zero Hedge http://ift.tt/1pO106l Tyler Durden

It’s 3:29:57 pm – Do You Know Where Your Massive “Send DJIA Green For 2014” Order Is?

Having lagged its higher-beta peers for over 3 months – unable to peek over the unchanged line year-to-date and staring blankly at its Transportation Index cousin – the Dow Jones Industrial Average has just traded into positive territory for the first time in 2014. Mission Accomplished? Wondering how it happened all of a sudden? Look no further than the volume spike at 3:29:57 in S&P 500 e-minis accompanies by the standard JPY ignition.

As if to prove all the HFT naysayers right, milliseconds before 3:30 pm – the traditional time when HFT algos come out and ramp stocks into the last half hour of the day, a massive E-mini order block slammed the tape, driven by a tremor in the USDJPY (and a VIX smash below 13%), sending the DJIA green for the year in the most unriggedly of manners.

15:29:57 – almost 10,000 eMini's in 2 seconds $ES_F $SPY

— Eric Scott Hunsader (@nanexllc) April 2, 2014

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Dennis Gartman Comes Out In Defense Of HFT: Long Of High Freaks In Monopoly Money Terms

Presented with no commentary and with lots of laughter as yet one more “expert” who has no clue what HFT actually is (and every clue about being the market’s best contrarian indicator – see here and here and here and here) comes out of the woodwork with a “world-renowned” opinion. Again…. and Again…. and Again. Needless to say, Gartman opining in favor of HFT effectively seals the debate if the vacuum tubes should all be done away with this nanosecond (even if, in a 180 degree about face, that is what Goldman suddenly also wants).

From Dennis Gartman

IN DEFENSE OF HIGH FREQUENCY TRADING:

Having lauded Ms. Barra for her honesty, we are here this morning to take Mr. Lewis to task for his ill-advised attacks upon the American capital markets in his new book, Flash Boys, which was given an enormous send-off Sunday evening as “Sixty Minutes” gave him a national audience that few authors anywhere have ever been given. Allowing Mr. Lewis… who has made several tens of millions of dollars writing about Wall Street and who should be an apologist for rather than an attacker of it… a place of prominence to tell the American people that the stock market is “rigged” is wholly wrong; has sent an utterly incorrect message to those people and has done damage that shall take years to correct.

We are supporters of HFT and we have no qualms in saying so. HFT creates liquidity, and although we would prefer to restore the old system of “specialists” on the floor of the NYSE who back-in-the-day had their own capital at risk and made markets during times of duress, those days are gone. They shall not return. The days of the bid-off spread being an 1/8th of a point rather than mere pennies are gone and they are gone forever. In their stead, stand HFTs and short term “scalpers” who create liquidity when and where they can, but they are not bound to do so and they are not guaranteed profits when they do. The “specialists” were effectively guaranteed profits when they were the bid when there were only offers coming at them and when they were the only offer when bids were ubiquitous.

The question here is of speed in execution and the HFTS are all about speed. They do indeed have faster communications with the exchanges in question. They do indeed “pick off” fractions of pennies in near front-running of orders; they do indeed have better quality computers than do we. That is their business, but we see their “need-for-speed” to be nothing more than yet another step in the quest for speed that allowed the Baron Rothschild to profit from news carried to him by carrier pigeon from the battle fronts in Europe before the news became public to the average investor. We see this quest for speed to be just another step in the process of an investor profiting from a news service in his/her office profiting from the news that he/she reads and interprets better and faster than those without that same news service. We see this quest for speed just another step removed from the positioning of clerks on the top steps of futures pits signaling bids/offers and sizes via flashing fingers to their counterparts on telephones linked back to trading desks in New York, with the fastest and best clerks being paid the highest sums and offered the most plum locations.

Let’s all just sit back; take a collective deep breath and know that the progress from carrier pigeons, to telephone lines, to quick-fingered clerks to micro-wave communications lines are all in a great line of communications progress. These are all steps in a history and nothing more. The HFTs have had their proverbial day in the sun; now they are having their day in the glare instead. But to blame them for one’s trading mistakes and to call for their removal is, from our perspective, ill-advised and wrong. We shall make many of our clients around the world angry with our position and we acknowledge that fact, but in the end history will bear us out. Rage against insider-trading; rage against unfair advantages, but do not rage against advances in communications and speed for to do so is to take the capital markets back to the days of Baron Rothschild and that would be sad indeed. ‘nuff said.

* * *

It probably is too late for the HFT lobby to have this particular defense stricken from the record.

via Zero Hedge http://ift.tt/1h3NM4f Tyler Durden

Reverse Mortgages Spike 20% in 2013 as Baby Boomers Scramble for Cash

So what exactly is a reverse mortgage?

In a nutshell, it’s a specific type of home equity loan available only to people aged 62 and over, which has the added benefit of not carrying any interest payments and is only due upon death or once the homeowner is no longer using it as a primary residence. As you can see, this might viewed as an attractive cash flow option for older Americans who didn’t save for retirement. That could be a lot of people, considering that Fidelity estimates 48% of baby boomers have not put away enough to retire.

While I have covered the various ways in which Americans are scraping by in the current feudal economy, from food stamps and disability fraud, to student loans and living in mom and pop’s basement, this reverse mortgage thing is a piece of the puzzle I have been missing.

These mortgages are not insignificant either. According to Inside Mortgage Finance, originations were up 20% in 2013, hitting $15.3 billion. So when you see that older guy working the cashier at Wal-Mart and wonder to yourself how he is surviving, the answer may increasingly be a reverse mortgage.

Oh, and since the FHA is originating many of these loans, you the taxpayer will be on the hook!

Let’s start out with some excerpts from the U.S. Department of Housing and Urban Development’s post: Frequently Asked Questions about HUD’s Reverse Mortgages.

The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program, which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

5. What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

See there really is a magic money tree. Thanks FHA!

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.

Moving along, we learn from the New York Post that:

Cash-strapped baby boomers, taking the TV advice of the Fonz and former US Sen. Fred Thompson, have opted for reverse mortgages in increasing numbers.

Inside Mortgage Finance, a trade publication covering the housing industry, said borrowers took out some $15.3 billion of these loans last year, an increase of 20 percent over 2012.

Reverse mortgages, which let homeowners age 62 and up borrow money against the value of their homes, have become a popular way for boomers without significant assets to fund retirement.

Is this something you’d expect to see five years into a genuine economic recovery, or it is a reaction to a ponzi consumption based economy plagued with zero income growth?

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Have We Reached Peak Wall Street?

Submitted by Charles Hugh-Smith via Peak Prosperity,

Though the mainstream financial media and the blogosphere differ radically on their forecasts – the MFM sees near-zero systemic risk while the alternative media sees a critical confluence of it – they agree on one thing: the Federal Reserve and the “too big to fail” (TBTF) Wall Street banks have their hands on the political and financial tiller of the nation, and nothing will dislodge their dominance.

Given how easily the bankers bamboozled the Washington establishment into bailing them out in 2008 to the tune of tens of trillions of dollars in backstops, guarantees, subsidies and zero-interest loans, this is a reasonable assumption. Especially when coupled with the free hand the Fed has to reward the banks with zero-interest loans and limitless liquidity.

Add in the unsurpassed political power of the banks’ lobbying and campaign contributions and the hog-tying of regulatory agencies, and it’s no wonder few see any threat to the Fed/financial sector’s dominance.

There’s also a compelling narrative that supports the Fed’s policies of keeping interest rates near-zero by printing money to buy mortgages and Treasury bonds: were the Fed to allow interest rates to normalize back up to the historically average range, credit-based consumption and housing sales would dry up, pushing the nation into a recession or even a depression.

What’s left unsaid is that such a contraction in credit would severely undermine the banks’ profits and solvency, and that it's that which is driving the Fed policy more than a concern for Main Street. Take a look at what happened to phenomenally robust financial profits in 2008: a contraction in credit caused financial profits (and solvency) to absolutely crater.

Interestingly, the collapse of financial profits back to 1.5% of GDP (gross domestic product) merely returned the financial sector to the level of profit it had earned in the 1960s and 70s. No one reckoned the high-growth 1960s were a depression, yet the collapse of financial profits back to the level of the go-go 1960s triggered the systemic insolvency of America’s financial sector.

This chart reveals the key driver of Fed policy: the enormous profits of Wall Street and the TBTF banks are based on an extraordinary expansion of leveraged credit that is visible in the red line—the ratio of total credit to GDP. This line traces out the birth of financialization in the early 1980s and the implosion of leveraged debt in 2008.

Simply put, the only way the financial sector (Wall Street and the banks) could continue to grab almost 5% of the nation’s entire output as profit is if the Fed keeps interest rates near-zero and floods the system with the limitless liquidity of expanding credit and money-printing. Here is a snapshot of the Fed’s balance sheet, which reflects its unprecedented expansion of money:

This chart shows that the Fed manipulates interest rates by buying equally unprecedented amounts of mortgages and Treasury bonds:

Thus there are three reasons why analysts extrapolate the Fed’s current policies in a straight line into the future:

Any contraction in credit would once again imperil the financial sector’s profits and solvency.
Since Wall Street is politically dominant, the Fed will not allow credit to contract.
Mainstream economists and politicians fear a recession triggered by credit contraction more than they fear a collapse of the U.S. dollar.

Analysts extrapolating Fed money-printing into the future conclude this expansion of the U.S. money supply will eventually devalue the U.S. dollar. The mechanism for this devaluation is easy to understand: potential buyers of Treasury bonds will begin wondering if the piddling inflation-adjusted returns on Treasury bonds are worth the risk that their bonds will be redeemed with currency that is worth a fraction of the value they bought them with.

The Fed could respond to this bond buyers’ strike by printing even more trillions to buy even more Treasury bonds than it already buys every year, but the fact that the Fed might be forced to become the buyer of last resort is hardly a vote of confidence in the policies that support financial profits at the expense of market discovery of price and value.

Stripped of obfuscating complexity, a bond is a claim on future national income, and a bet that the currency used to redeem the bond in the future will have the same value as the currency initially traded for the bond. If doubt arises about this, buying the bond or owning the currency is a bad bet.

As a consequence, many observers have concluded that the Fed can’t stop printing money and keeping interest rates near-zero (because those policies enable the financial sector to skim its hundreds of billions of dollars in profits) and so the U.S. dollar is doomed to devaluation and eventual loss of its status as the world’s primary reserve currency.

The Reserve Currency

What is a reserve currency? Although the subject deserves a book-length explanation, let’s pare it down to the essentials.

First, we need to understand that currency (money issued by nations) is a commodity like any other. The global currency exchange (called the FX market) discovers the price of currencies by supply and demand, just like the markets for wheat, oil, lumber or other commodities. Various nations can arbitrarily peg their own currency to another currency, but ultimately the value of every currency is set by supply and demand.

Second, we need to differentiate between a trading currency and a reserve currency. Many people confuse the two. Let’s say a Chinese company buys sugar from Brazil and a Brazilian company buys electronics from China. The firms exchange Renminbi (yuan) and Brazilian Reals. These are trading currencies, as they facilitate trade between two nations.

A reserve currency is a currency that nations hold as reserves to protect their own currencies from market shocks and as collateral for credit issued by the nation holding the reserve currency.

Gold is one form of reserve/collateral. In a gold-backed currency, the currency is directly pegged to physical gold. When the U.S. dollar was gold-backed, other nations could trade $35 for an ounce of gold.

Nowadays, there are no explicitly gold-backed currencies, though many nations hold gold as a form of collateral.

A reserve currency acts in a similar fashion, as a predictable store of value that can be easily bought and sold on the global marketplace.

When markets lose faith in a currency’s value, traders sell the currency before it loses any more value. This selling lowers the value, creating a self-reinforcing feedback loop of selling triggering more selling. This creates a currency crisis as the currency rapidly loses value. To stop the crisis, the issuing nation must sell collateral (gold, reserves of other currencies) to sop up all the selling. If the nation fails to stem the crisis, its currency collapses once its reserves are gone.

What does all this mean? What it boils down to is the global currency markets impose a discipline on money-printing. If a country prints its own currency with abandon and does not build up equivalent reserves/collateral to back that expansion of currency, eventually the nation’s money-printing devalues the currency. Once the currency loses most of its value, the country no longer has the means to buy oil or other goods from other nations.

There is one general exception to this discipline: the nation that issues the reserve currency can print more currency and as long as there is sufficient demand for that currency as reserves, the issuing country has the “exorbitant privilege” of issuing intrinsically worthless paper and exchanging it for very valuable commodities such as oil, electronics, autos, etc. (For more on this topic, please see Understanding the "Exorbitant Privilege" of the U.S. Dollar)

Currently, the primary reserve currencies are the U.S. dollar and the euro.

Though some analysts argue that the reserve currency is a burden whose benefits are outweighed by its liabilities, the privilege of being able to issue your currency and exchange it for real goods and services without regard for one’s own collateral reserves should not be underestimated.

Simply put, the U.S. dollar’s status as a reserve currency is a key component of U.S. global dominance. Were the dollar to be devalued by Fed/Wall Street policies to the point that it lost its reserve status, the damage to American influence and wealth would be irreversible.

What if Wall Street is Recognized as a Strategic Threat to the Nation?

As a result, I discern another possibility to the consensus view that the Fed/Wall Street will continue to issue credit and currency with abandon until the inevitable consequence occurs, i.e. the dollar is devalued and loses its reserve status.

I propose an alternative narrative for consideration, in which the other power centers of the U.S. government (known as the Deep State) awaken from their ignorance of finance and awaken to the fact that Fed/Wall Street policies constitute a strategic threat to the dominance and prosperity of the U.S. nation-state.

In this view, Wall Street’s power has peaked and is about to be challenged by forces that it has never faced before. Put another way, the power of Wall Street has reached a systemic extreme where a decline or reversal is inevitable.

Part 2: The Implications of a 'War of Elites' focuses on how, as a result of its over-reach, Wall Street is at risk of encountering blowback from forces that the financial sector assumed were benign or under its control. Now that Wall Street poses a strategic threat to the viability of the American Project, its dominance may well be about to be challenged in ways few imagine possible.

What would such a power struggle look like? How would it unfold? What would the costs be to society? How will the rest of us be affected?

Click here to access Part 2 of this report (free executive summary, enrollment required for full access).

via Zero Hedge http://ift.tt/1mzEADR Tyler Durden

Europe Mapped According To The Germans (And The Russians)

As Acting-Man’s Pater Tenebrarum notes, a recent Der Spiegel article highlights the fact that in spite of the fact that Russia and especially Putin are demonized with great verve in the Western media (including Germany’s), it seems German citizens from all walks of life and all political camps are highly devoted fans of Russia and its president. As the following two maps show, “Europe” means a lot of different things to the Germans and the Russians.

How The Germans see Europe…

And how The Russians see it…

Source: Acting-Man

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W(h)ither Petrodollar: Russia, Iran Announce $20 Billion Oil-For-Goods Deal

Spot what is missing in the just blasted headline from Bloomberg:

IRAN, RUSSIA SAID TO SEAL $20B OIL-FOR-GOODS DEAL: REUTERS

If you said the complete absence of US Dollars anywhere in the funds flow you are correct. Which is precisely what we have been warning would happen the more the West and/or JPMorgan pushed Russia into a USD-free corner.

Once again, from our yesterday comment on the JPM Russian blockade: “what JPM may have just done is launch a preemptive strike which would have the equivalent culmination of a SWIFT blockade of Russia, the same way Iran was neutralized from the Petrodollar and was promptly forced to begin transacting in Rubles, Yuan and, of course, gold in exchange for goods and services either imported or exported. One wonders: is JPM truly that intent in preserving its “pristine” reputation of not transacting with “evil Russians”, that it will gladly light the fuse that takes away Russia’s choice whether or not to depart the petrodollar voluntarily, and makes it a compulsory outcome, which incidentally will merely accelerate the formalization of the Eurasian axis of China, Russia and India?”

In other words, Russia seems perfectly happy to telegraph that it is just as willing to use barter (and “heaven forbid” gold) and shortly other “regional” currencies, as it is to use the US Dollar, hardly the intended outcome of the western blocakde, which appears to have just backfired and further impacted the untouchable status of the Petrodollar.