Tuesday, September 30, 2014

Stock, bond and liquidity market agents are evidencing schizophrenia.........YOUR MONEY IS NOT SAFE IN A MARKET LIKE THIS!

Stock, bond and liquidity market agents are evidencing schizophrenia

The bond market is schizophrenic. One day it forecasts higher interest rates, and bond investors panic. The next day, data suggest the opposite.  Resulting bond market disarray ensues and rising bond interest rates seem way out in the future. The market rallies. Schizophrenia prevails in the bond market.

The US stock market struggles with persistently very low interest rates and high liquidity. All of that is due to central bank policy. Meanwhile geopolitical risk rises; headline risk rises; and the new phenomenon of a structurally strengthening US dollar develops. Volatility in stock markets (VIX, SKEW) is reactive.  Valuation metrics suggest the market is priced at a high level yet liquidity abounds and its influence is intense.  Stocks, too, have schizophrenia.

We expect a long stretch of rising US dollar strength compared with most other currencies worldwide. We are also aware of the geopolitical risk that is abundant in the world and may precipitate a "black swan" event at any time. That could lead to a major 
correction in stock prices.


The Ingredients Of A Market Crash.............

The Ingredients Of A Market Crash

Concerns at present mirror those that were expressed at the 2000 and 2007 peaks, as we again observe an overvalued, overbought, overbullish extreme that is now coupled with a clear deterioration in market internals, a widening of credit spreads, and a breakdown in our measures of trend uniformity. 

My sense is that a great many speculators are simultaneously imagining some clear exit signal, or the ability to act on some "tight stop" now that the primary psychological driver of speculation – Federal Reserve expansion of quantitative easing – is coming to a close. Recall 1929, 1937, 1973, 1987, 2001, and 2008. History teaches that the market doesn't offer executable opportunities for an entire speculative crowd to exit with paper profits intact. 

Hence what we call the Exit Rule for Bubbles: you only get out if you act / panic before everyone else does.

Meanwhile, with European Central Bank assets no greater than they were in 2008, and more fiscally stable European countries quite unwilling to finance the deficits of unstable ones, the ECB has far more barriers to sustained large-scale action than Draghi's words reveal. Moreover, to the extent that the ECB intends to buy asset-backed securities (ABS), which have a relatively small market in Europe, the primary effect (much like the mortgage bubble in the U.S.) will be to encourage the creation of very complex, financially engineered, and ultimately really junky ABS securities that can be foisted on the public balance sheet. 

I should be clear that market peaks often go through several months of top formation, so the near-term remains uncertain. Still, it has become urgent for investors to carefully examine all risk exposures. 

When extreme valuations on historically reliable measures, lopsided bullishness, and compressed risk premiums are joined by deteriorating market internals, widening credit spreads, and a breakdown in trend uniformity, it's advisable to make certain that the long position you have is the long position you want over the remainder of the market cycle. 

As conditions stand, we currently observe the ingredients of a looming market crash.

America's Demographic Situation Is A Ticking Time Bomb......ANOTHER PESKY FACT!

America's Demographic Situation Is A Ticking Time Bomb

When America's social security, health care, and entitlement systems were first conceived, the country had a very different age distribution. There were roughly 7 active workers per retiree, and the ability to transfer some of that employee wealth to support older citizens was supportable.

But with the arrival on the scene of the Baby Boom as well as advances in longetivity, the math changed dramatically. By 2005, there were only 5 workers per retiree. And by 2030, just 15 short years away, there will be less than 3.

Our national demographic architecture no longer can afford the entitlement system we have. 

And that's even assuming entitlements were currently sufficiently funded. But the existing programs are underfunded to the tune of $100-200 Trillion.

America's demographic situation is a ticking time bomb. 

The older generation is already competing more fiercely than ever with younger ones in the job market, as many seniors can't afford to retire. Youth also has to contend with trends like automation, outsourcing, and high unemployment/underemployment, which further handicap their ability to build capital and, importantly, to afford all the assets (stocks, houses, etc) that the Boomers are counting on selling to them.

The Real Reason For The Fed........Funding War!

The Real Reason For The Fed

Robert Latham Owen was a part-Cherokee Democratic Senator from Oklahoma between 1907 and 1925 who ironically championed efforts to strengthen public control of government.

He is, however, best-known as a co-sponsor of a bill that would change the world forever - The Federal Reserve Act of 1913, which enabled the Federal Reserve System.

Writing later in his life, he reflected as so many political leaders do once they leave office, on the real reason for the Federal Reserve Act...

From Robert Latham Owen's "National economy and the banking system of the United States"

Funding War!

Monday, September 29, 2014

Here's What The "Super-Rich" Are Rushing To Buy.........FACTS NOT OPINIONS!

Here's What The "Super-Rich" Are Rushing To Buy

The exodus out of paper wealth and into hard assets is reaching a fever pitch as the "super-rich are looking to protect their wealth through buying record numbers of "Italian job" style gold bars.

The number of 12.5kg gold bars being bought by wealthy customers has increased 243% so far this year, when compared to the same period last year. "These gold bars are the same ones you see in the film 'The Italian Job. Tthe bars which are made from pure gold and are worth more than £300,000 each at today's prices.

The sales of 1kg gold bars, worth about £25,000 each, have doubled during the three months ended August, when compared to the same period last year.

Sales of the more popular, and far cheaper gold coins such as the quarter ounce sovereign and one ounce Krugerrand have also doubled this year.

The "super rich" are rushing to buy gold!

As the chart below shows, there is no better way to continue masking the demand for physical gold than to keep selling paper gold, in this case via its most liquid manifestation, the GLD ETF. It is this ETF that just saw the notional value of gold "holdings" backing the paper manifestation of its "goldness", drop to just 776 tons, the lowest since 2008 and nearly half the maximum "holdings" of 1,353 tons reached in December 2012. 


Is The Stock Market Of 2014 A Bubble Ready To Burst?..........

Is The Stock Market Of 2014 A Bubble Ready To Burst?

Is the stock market in a bubble? The answer is yes, absolutely, you bet it is. 

The interesting part is that it is not the only asset class that is in a bubble. In addition to the stock market, real estate is also in a bubble, and these prices have absolutely been influenced by FOMC policy.

he policy of central banks to inflate asset prices using a tool invented, it seems, by Ben Bernanke certainly has reshaped economic conditions, and thus far, they have prevented a Greater Depression by adding fuel (debt) to the already roaring fire.

According to the FOMC, they will officially end their bond-buying program in the next meeting unless extraordinary circumstances arise. My analysis suggests that the net real stimulus in the financial system is already negative when the operations of the U.S. Treasury are included, but everyone can see that the stimulus program is ending, and as it comes to an end, the economy is again allowed to operate on a more natural basis.

The question I pose to you is if the economy actually would have been weakening over the past few years on a naturalized basis as my analysis suggests, but instead it has been supported by capital injected by the FOMC to inflate asset prices, what do you think will happen when the money flows stop?

My answer is that the economy will revert back to its naturalized condition, which is much weaker than it is today, suggesting that both the stock market and real-estate prices will contract, and that means a crash is looming.

We are absolutely in an asset bubble today, there is no question about it, and it is the result of FOMC policy. The only way to avoid a crash is to continue to pump money into the system and support an economy that is, in every sense of the word, addicted to stimulus.

China, Russia & Gold Are "The Enemy".........

China, Russia & Gold Are "The Enemy"  

The suppression of gold prices is essential at all costs to the Anglo-American banking interests.The saber rattling and attempts to lure Russia and China into military conflict are about who controls the financial world.

Russia and China keep accumulating the eternal currency – gold.


The American Empire and their EU disciples continue to accumulate debt and print fiat currencies. Has fiat paper ever won out over gold in the long-run? 

Change is coming. Revolution is in the air!

You can sense the desperation of the ruling oligarchs. Their fiat world is beginning to crumble. 

But they will not go without a bloody fight.

The failure of a monetary system is never a smooth road - it is rocky and undulating, with twists and turns that don't appear on any map. But the destination is always without question, despite suppression efforts: Gold will inevitably respond to an expanding fiat currency supply and reality will trump fiat illusions.


The highest median house value in every state......GREAT GRAPHIC!

The highest median house value in every state:

Sunday, September 28, 2014

Understanding the End Times: INTRODUCTION!

Understanding the End Times: Introduction

Bible prophecy is not a prediction of the future, rather a promise about the future.   

The Bible contains hundreds of specific prophecies that have been fulfilled in specific ways, all with 100% accuracy. There is no denying that truth. Prophecies of Jesus Christ, Israel and world empires are found throughout the Old and New Testaments. Fulfilled prophecy is one of the most powerful proofs that the Bible is truly the Word of God.  Since all of the prophecies that were to be fulfilled in the first coming of Christ were fulfilled to the finest detail, we can be sure that the Bible itself is God's revelation to man since no human writer could be 100% accurate.

"For prophecy never had its origin in the will of man, but men spoke from God as they were carried along by the Holy Spirit."  

                           2 Peter 1:21

Just because the topic of the end times makes you uncomfortable is no reason to ignore it, in fact that is the reaction of a coward or a fool. Christ commanded us all to be watching for his return, to understand the signs of the end times and to be ready and warning others. Few are doing as Christ commanded. Most Churches entertain rather than teach, promote growth and expansion rather than the coming Kingdom of God. Their is no salvation without revelation, if one is a lie, both are. Churches are happy to preach salvation and ignore revelation. The very definition of lukewarm.

The most studied prophecy topics are those of the Messiah (Jesus Christ), Israel, the Church and last-days events (including the rapture and tribulation period).  Sadly, few pastors or church leaders are interested in teaching Bible prophecy. They would rather preach comfort and prosperity. The result is that prophecy is not a popular topic in churches today.  For that reason, many Christians are no longer passionate about the return of Jesus, are lacking in faithful obedience, often prayerless and less interested in studying Scripture.

As churches become self-absorbed or otherwise apostate, their congregations no longer remain interested in the whole truth. 

A big Church is not a better Church! A rich Church is not a better Church! A saved Church ignoring the book of Revelation and the signs of the last days is not a better Church! A lukewarm, apostate Church that is not watching for Christs return, that is not preaching Revelation as well as Salvation, not helping the flock to understand that the most important moment in all of history is fast approaching,is not a better Church!

In fact, simple teaching on prophecy subjects is often the first to be shelved because it is too convicting, too uncomfortable!

27% of the Bible is prophetic, which sparks a fire within when otherwise complacent Christians consider the ramifications of their lukewarm lives before a just God.  However, few congregations are aware of last-days events described in the Bible.

Many pastors don't understand and won't study prophecy, too uncomfortable, too confusing and hard, too complex and politically incorrect, so they ignore this most important subject and don't speak or preach on it. In doing so they become the decievers spoken of so often in Revelation, preaching only the comfortable truth,is the same as preaching a lie.
Others are confused over the debate amongst scholars and theologians as to the timing of the rapture.  While the majority of scholars agree with the pre-tribulation view (the rapture happens prior to the tribulation period), many others suggest the Church will go through the tribulation (post-tribulation view).  There are two other views which hold less support.  These include (1) the mid-tribulation rapture (the rapture takes place at the middle point of the tribulaiton period, and (2) the pre-wrath rapture (the rapture occurs just before the wrath of God is revealed near the end of the tribulation period).

Prophecy topics can be difficult to understand, particularly the book of Revelation.  As prophecy scholar Dr. Patrick Heron says, it can seem like "a conundrum wrapped in an engima surrounded by a paradox!"  But if you ask the Holy Spirit for guidance, understanding and wisdom on this subject it becomes clear and it's importance to Almighty God and Jesus Christ becomes very evident.

Those who consider prophecy and end-times events as mostly allegorical (symbolic) or non-literal are more likely to have an amillennial or post-tribulational rapture view.  Those who teach ammillennialism believe the events described in the book of Revelation took place on or before 70 A.D. when Jerusalem was destroyed by the Romans; thus there is no rapture, no Church Age, no tribulation period.  That unbiblical view is held by those who call themselves preterists.

On the other hand, post-tribulationists believe there is a Church Age and a tribulation period, and that the rapture of the Church will take place at the conclusion of the tribulation period (a period also known as Daniel's 70th week, described later). 

It would be hard to understand English,have the IQ of at least a doorknob and have read the Bible with any thoroughness and maintain either position outlined above. Gods word is clear! VERY CLEAR!

The erroneous suggestion that the Church will go through the tribulation period is an argument based primarily on Matthew 24:29-31, Mark 13:24-27, and Matthew 24:9-13 (explained below).  This logically leads Christians to a critical view of their role in society, and the necessity of preparedness for the inevitable.  Christians are advised to store food, isolate from society (or governments), and plan to protect their families.  The focus is on the coming Antichrist, not the coming of Jesus Christ.  Such notions are contrary to what Jesus commanded believers, and thus hinders the Christian from winning a lost world.

Where did the allegorical view of the Bible originate?  

One of the earliest documented attempts to allegorize Scripture began with the scholar Philo Judaeus.  Philo (20 B.C.—54 A.D.) started the Alexandrian School in Alexandria, Egypt.  Philo was a Jewish philosopher, well educated in Greek philosophy.  He was of a noble Jewish family, and being a dedicated scholar, Philo acquired knowledge in literature, philosophy and the sciences.  Himself and other learned Jews were the first to promote the allegorical interpretation of Scripture, a principle well established in Greek learning and used widely in the study of the ancient Greek legends.  Philo and his colleagues sought to defend the Old Testament to the Greeks and, even more so, to fellow Jews by accommodating the Scriptures to Greek philosophy as a tool for reinterpreting confusing passages. MANS IGNORANT ATTEMPT TO CONFUSE WHAT GOD HAS CLEARLY SAID AND EXPLAINED IN HIS PERFECT WORD. THEOLOGY IS MANS OPINION ABOUT WHAT GOD HAS CLEARLY SAID IN THE BIBLE. MOST MEN HAVE AN AGENDA, SO DO MOST THEOLOGIES. TRUST GODS WORD NOT MAN!

The first attempts to reinterpret Scripture were rooted in godless human philosophy and an education system based on Greek understanding of the times.  This philosophy was continued by other scholars early in Church history, often called the "Hellenization of the Scriputures."  Of the early Church fathers, many followed Philo's arguments.  The first prominent scholar of that period who applied Philo's approach to New Testament passages was Clement (150 A.D.—215 A.D.), a Greek who was educated at the Alexandrian School in Egypt.  In fact, Clement regarded many elements of Greek philosophy as not necessarily in opposition to Christianity.  Next was Origen (185 A.D.—254 A.D.), a Roman scholar and writer from the Alexandrian School.  Considered one of the most brilliant of the Alexandrian scholars, he was the first noted teacher of the allegorical method of interpretation.

The allegorical interpretation of the Bible and Bible prophecy gained broad acceptance by the third century A.D.  Eusebius (260 A.D.—339 A.D.), an early Roman priest, accepted this erroneous theology, and coupled with Philo's and Origen's interpretive approach, later influenced Augustine (354 A.D.—430 A.D.).  Augustine, a brilliant theologian, became a strong proponent of allegorical interpretation.  He is known as the father of Catholic doctrine, and had great influence on those who would follow.  Sometimes called the Augustinian Corruption, his views were endorsed by the Council of Ephesus in 431 A.D.

Augustine's allegorical interpretation of the Bible, particularly the book of Revelation, became known as Alexandrian Theology, and dominated the understanding of prophecy during the Medieval Period and Middle Ages (500 A.D.—1500 A.D.), which some scholars call the "dark ages" of the Church.  Prophecy was reduced to insignificant symbolic events of the past.  Augustine had a huge impact on the Church in this regard.  He found acceptance with the Roman Catholic church and later amongst leaders of the Reformation.  

In fact, most Catholic and many Protestant believers today adhere to Augustine's views on prophecy (whether they know it or not).  Since Augustine, Greek philosophy has dominated Christian teaching on prophecy, rather than the Word of God itself.

Other early Church fathers, including Irenaeus, Tertullian, Lucian and Chrysostom rejected Philo and his contemporaries on the non-literal approach to Scripture, but their views were eventually censored.  Not until the 1600s were theologians again freely rejecting the teachings of Augustine and his followers.  Today, nearly 500 years after the start of the Reformation, many denominations continue to endorse allegorical teaching.  Regretfully, this has led to a vast misunderstanding of Bible prophecy and prophetic events now occurring.

Those who deem the Bible's description of prophecy and end-times events as literal, a pre-tribulation rapture view is likely to be held, meaning the Church will be removed before the tribulation period.  That logically leads to a sense of urgency for the believer to win as many souls as possible.  Preparation is understood as reaching the lost, knowing that Christ could call His faithful home at any moment.  A student of prophecy, or anyone who desires to understand last-days events, must consider a literal interpretation of Scripture.  The reasons are self-evident, as are the truths given in Scripture for the pre-tribulation rapture of the Church.
Israel's role in history:  keys to understanding prophecy and world history.

The book of Daniel is an important starting point for understanding Bible prophecy.  Why?  Daniel was given a vision by an angel sent from God, detailing Israel's future and subsequent world events.  The angel spoke of two distinct futures which dealt with both Israel and the Gentile (non-Jewish) world.  These future events, prophetically speaking, are related to events of the holy city of Jerusalem.  When studying prophecy, we find events in the world are directly related to events in Jerusalem.  That is why Daniel was given a chronology of future events pertaining to Jerusalem and the world.  At that time, Daniel and the Israelites were captives in Babylon, and the city of Jerusalem had been destroyed.  God chose to give Daniel the remaining "time" alloted to Israel (future), including Jerusalem's role (Daniel 9:24-27):

1.  A specific amount of time (years) was determined for Israelites/Jews and Jerusalem.
2.  There would be a decree to rebuild Jerusalem.
3.  Jerusalem and the temple would be rebuilt.
4.  An Anointed One (Messiah) would be "cut off" (meaning "rejected" or "killed").
5.  Jerusalem and the temple would be destroyed again.
6.  A peace covenant over Jerusalem will be offered by the Antichrist then broken mid-way.
7.  The Antichrist will be an abomination that desolates in Jerusalem, but he is detroyed in the end.

First, the Jewish future was laid out in a specific time line:

"Seventy weeks are determined for your people and for your holy city, to finish the transgression, to make an end of sins, to make reconciliation for iniquity, to bring in everlasting righteousness, to seal up vision and prophecy, and to anoint the Most Holy."  

                                                                               Daniel 9:24

That passage is a summary of Jewish history, from Daniel's day to the Second Coming of Jesus Christ at the end of the tribulation period.  Exactly what is meant by "seventy weeks?"  The word "week" literally means "seven," and modern prophecy scholars agree that "seventy weeks" are "seventy sevens," measured in units of years.  Since a "week" is 7 years, the overall time "determined" to Israel was 490 years (70 x 7).  Thus, a total of 490 years is all God is giving to Israel.  As we will see, those 490 years are broken up, with the final 7 years to be completed in the very near future.  

When does the final 490 years begin?  When a decree is issued to rebuild Jerusalem (next verse):

"Know and understand this:  From the issuing of the decree to restore and rebuild Jerusalem until the Anointed One, the ruler, comes, there will be seven 'sevens' (or weeks), and sixty-two 'sevens.'  It will be rebuilt with streets and a trench, but in times of trouble."  

                                                                                                           Daniel 9:25

The "issuing of the decree" that authorized the rebuilding of both the city of Jerusalem and the temple was given to Nehemiah by Artaxerxes I Longimanus, King of Persia, in 454 B.C. That is the starting point of the prophecy, and Nehemiah 2:1-20 provides details.  The issuing of the decree took place exactly as the Bible declared, fulfilling the time prophesied for the crucifixion to the day:

454 B.C. (issuing of decree) + 30 A.D. (crucifixion) = 484 years - 1 year for going from B.C. to A.D. = 483 years

How precise is God's timing!  

Since 483 years was to pass—seven 'sevens' (or weeks), and sixty-two 'sevens' from the issuing of the decree to the crucifixion of Christ, understanding the entire time allotted to Israel helps us understand the remaining timeline of history for the world.  That's history in advance!  490 years were given to Israel, and 483 years have been completed.  

Seven years remain.  Again, those final 7 years (one week) are known as "Daniel's 70th week" or the tribulation period.  

Here's more detail:

As the prophecy continues, Daniel describes the first 483 years or 69 'sevens' (seven 'sevens' plus sixty-two 'sevens') until the time Jesus was crucified.  Scholars note that Jerusalem and the temple were rebuilt over a period of seven years (seven 'sevens'), then there was a break before the next sixty-two 'sevens' were fulfilled (Jesus on the cross).  Together, there were 69 'sevens.'   After the 69 'sevens' (or 483 years), it was prophesied the Messiah would be "cut off."   That happened exactly as prophesied.  We know that 483 of those years (or 69 "weeks") have been fulfilled as promised—the decree was given, Jerusalem and the temple were rebuilt, and the Annointed One (Jesus Christ) was crucified.  Yet, only 483 of the 490 years has completed.  Though there are 490 years of Israel's history to be fulfilled, there is a break in those years.  That leaves one more "week" or 7 years to be fulfilled at a later time:

"Then after the sixty-two weeks the Messiah will be cut off and have nothing, and the people of the prince who is to come will destroy the city and the sanctuary.  And its end will come with a flood; even to the end there will be war; desolations are determined.  And he will make a firm covenant with the many for one week, but in the middle of the week he will put a stop to sacrifice and grain offering; and on the wing of abominations will come one who makes desolate, even until a complete destruction, one that is decreed, is poured out on the one who makes desolate."  

                                                                                                                      Daniel 9:26-27

Now we see 483 of the 490 years decreed for the Jewish (Israeli) people to put an end to sin (Jesus died in our place) and anoint the most holy (Jesus Christ now sits at the right hand of God) have passed.  They were the years up until the Messiah (Jesus Christ) was cut off, or crucified.  Though Daniel is receiving tremendous insight, he does not understand Israel's ultimate rejection of the Messiah, and thus is not told of the Church Age to follow.  The Apostle Paul would later call this a "mystery" to Israel.

What is the Church Age?  

The Church Age is the period of time between the end of the 69th week and the beginning of the 70th week (the time break between the 483rd and 484th years—the time when God uses Gentiles to spread the Gospel to an imperfect world before dealing with Israel again):

"So that you may not claim to be wiser than you are, brothers and sisters, I want you to understand this mystery:  a hardening has come upon part of Israel, until the full number of the Gentiles has come in."  

         Romans 11:25

The Church Age is a perpetual mystery (something hidden) to Israel and will remain so until the beginning of the 70th week (the tribulation period).  During the Church Age, a certain "number" of Gentiles must come to Christ before the Lord will deal with Israel again.  The Church Age is also called "The Time of the Gentiles" or the "Age of Grace," and began at Pentecost when Jesus had risen from the dead and the disciples received the Holy Spirit.  That happened in the year 30 A.D. (exactly 483 years after Daniel's prophecy of the issuing of the decree to rebuild Jerusalem and will conclude with the Church being removed from the earth:

"For if we believe that Jesus died and rose again, even so them also that are fallen asleep in Jesus will God bring with him.  For this we say unto you by the word of the Lord, that we that are alive, that are left unto the coming of the Lord, shall in no wise precede them that are fallen asleep.  For the Lord Himself shall descend from heaven, with a shout, with the voice of the archangel, and with the trump of God:  and the dead in Christ shall rise first; then we that are alive, that are left, shall together with them be caught up in the clouds, to meet the Lord in the air:  and so shall we ever be with the Lord.  Wherefore, comfort one another with these words."  

                                                                                   1 Thessalonians 4:14-18.

Bible scholars concur the above passages describe the rapture of the Church, ending the Church Age.  After the Church is caught up (raptured), God will then turn His focus back to the Jewish people for the final "week" or 7 years, called Daniel's 70th week, completing the 490 years decreed for the people of Israel (Jews).  As previously noted, we are now living in the Church Age, a period of time between the end of the 69th week and the beginning of the 70th week.  The first 483 years of Daniel's prophecy had nothing to do with the Church, neither will the Church have anything to do with the last 7 years.

So how do we know when the end of the Church Age will come?  

Jesus gave us a guarantee, and He uses the fig tree as an example.  In fact, Jesus said the generation which sees this "blossoming" will be the one that witnesses the events of the last days:

"Now learn this lesson from the fig tree:  As soon as its twigs get tender and its leaves come out, you know that summer is near.  Even so, when you see all these things, you know that it is near, right at the door.  I tell you the truth, this generation will certainly not pass away until all these things have happened.  Heaven and earth will pass away, but my words will never pass away.  No one knows about that day or hour, not even the angels in heaven, nor the Son, but only the Father.  As it was in the days of Noah, so it will be at the coming of the Son of Man.  For in the days before the flood, people were eating and drinking, marrying and giving in marriage, up to the day Noah entered the ark; and they knew nothing about what would happen until the flood came and took them all away.  That is how it will be at the coming of the Son of Man."  

                                                                             Matthew 24:32-39

Some have misread this to mean that the fig tree is a symbol for the nation of Israel and that the Lord is saying that when Israel shows signs of life as a nation, then the end is near.  Luke said this is not only about the fig tree, but also of "all the trees" (Luke 21:29).

Everyone knows that when trees begin to put forth their leaves, summer is near.  Jesus said that no one knows the day or the hour of the end of the Church Age, though we can know when it is near.  Jesus specifically notes events leading up to the end of the Church Age:  "blossoming" and "things as usual" on the earth.  Jesus was speaking to the disciples (Jews) here, so the generation Jesus speaks of is a reference to Israel.  Since Israel did not exist again as a nation until 1948, we can conclude present-day Israel would be the "generation" or "people" Jesus was speaking of in the last days.  

When it becomes apparent that the world is heading toward the conditions Jesus described, then we can be very sure that His coming is near.  The world has reached the stage Jesus mentioned, and the possibility of the coming of the Antichrist looms on the horizon.  

A majority of worldly people and sadly many Christians are ignorant of these coming events, continuing to live "as usual."   We are truly living in the last days—no doubt very, very close to the end of the Church Age.

The end of the Church Age will be evident by the removal of the Church in the Rapture , which will produce global economic chaos and fear.  The world will be in a state of shock, not understanding that God's focus has turned toward Israel's 70th week, a horrifying time on earth.

The final or 70th week (7 years) is also called the "tribulation period," of which the last 3½ years are referred to as the "Great Tribulation"—culminating in the worst seven years of human history.  

The Church will not go through that period, as it is called a time of "Jacob's trouble:"

"Alas!  For that day is great, so that none is like it; and it is the time of Jacob's trouble, but he shall be saved out of it." 

                   Jeremiah 30:7

That prophecy is for Israel, not the Church, though the rest of the world will be affected by it.  The name Israel comes from Jacob, son of Isaac, son of Abraham.  Jacob was renamed Israel, and twelve of his sons established of the twelve tribes of Israel.

Throughout Israel's history its disobedience of God's commands led it to become captives in foreign lands; however, God promised Israel would never lose it's identity.  The Jews (specifcially) are the only people group in history to have maintained their identity, language and heritage without being absorbed into the communities or cultures of their foreign hosts and nations.  God promised to return them to their homeland and revive their nation status (which happened in 1948, as prophesied).  Even so, Satan attempted to destroy the Jews several times in recent history, simply to prevent God's promise to Israel.

For example, in Europe the Jews were massacred time and again on religious, economic and racial grounds.  Thousands were slaughtered during the 11th and 12th century crusades.  In the 14th century they were falsely accused of causing the Black Plague by poisoning wells, and were subsequently massacred.  Many were burned at the stake during the Spanish Inquisition of the 15th century.  Still others were murdered by the Cossacks in the Ukraine during the 17th century.  Following World War I, hundreds of thousands of Jews were also killed during the Russian civil war.  Then came the infamous Nazi Holocaust of World War II.  Is it any wonder the Jews dreamed of going home as God promised?

God's promise to Israel is significant in the last days, and as described in Revelation the promised land plays a key role.  Israel's refusal to accept Jesus Christ as Messiah brought about the Church Age, and the coming week of "Jacob's trouble."  There is no need for anyone, Jew or Gentile, to go through the terrible sufferings of the time of Jacob's trouble, for God has made a way of escape.  All who accept His way of escape by faith will be delivered.  This is not a "secret" event as some like to call it.  

If anything, it is a sacred event!  

Jesus made clear the condition of the world just prior to this event.  A disbelieving world will remain, and sadly, as many denominations (churches) become self-absorbed or otherwise apostate, their congregations no longer remain interested in that truth (described as the wealthy last-days Laodicean church of Rev. 3:14-19). 

James pictured Christ as the Judge standing at the door (5:9). Jesus spoke of his disciples as waiting expectantly for the master so they could open the door to him (Luke 12:36).

The image of Christ standing outside and knocking may also imply that the Laodiceans have locked him out of their church! But the metaphor is also a symbol of promise. Christ is waiting outside, hoping the Laodiceans will be open to his correction and change their ways. If they do, he will come in and share a meal with them. The fellowship meal figures prominently as a symbol of togetherness with Christ in the kingdom.

If as individuals and as the body and bride of Christ collectively we are not watching and waiting for his return, if we are not understanding and promoting the message of Revelation, we are lukewarm and Christ has promised that those that are lukewarm,He will spit out of his mouth.

Based on every sign of the End Times given in the Bible we are there and the removal of his Bride, the Church is at hand. Sadly the Church is asleep, in many cases cowardly, sadly apostate. We should all be boldly understanding and promoting the truth of Revelation. Every eye shall soon see, every knee shall soon bow!

Friday, September 26, 2014

Credit Markets Are Plunging........MORE PESKY FACTS!

Credit Markets Are Plunging

Having seen liquidations of a relatively small fund yesterday send the NASDAQ down 2% and credit reeling, world bond and stock markets are reacting aggressively. German stocks are tumbling, European peripheral bond spreads are pushing wider and US credit markets are getting smashed.

Yesterday's plunge in stocks (and credit markets) was pinned on several catalysts from Russia to Fed speak, but the 'liquidations' explanation appeared to make most sense and now we have a candidate for the culprit. As The Wall Street Journal reports, $10.6 billion BlueCrest Capital Management LLP, one of Europe's largest hedge-fund firms (and best known for its credit market expertise), laid off several stock traders in the U.S. Thursday and began liquidating their investments, according to people familiar with the matter, not long after it aggressively expanded into equities. 

When one fund's liquidation of part of their portfolio can drop the Nasdaq by 2%, it should be clear to everyone (including Janet and here friends at The Eccles Building) that the stock market 'stability' is anything but "contained."

Asian Markets Closed Down. The Nikkei took the biggest hit, falling 0.88%, while the Hang Seng dropped 0.38%.


David Zervos of Jefferies, One Of The Biggest Bulls For The Past Few Years Has An Ominous New Tone.......ANOTHER PESKY FACT!

David Zervos of Jefferies, One Of The Biggest Bulls For The Past Few Years Has An Ominous New Tone

Is it really 
different this time?

For years we've gotten accustomed to rising markets and dips always being bought. But the recent selloff in the market (which was driven home by Thursday's big 200+ down day in the Dow) is making some folks very 

The fundamental reason? The end of ultra-easy Fed policy appears to be in sight, and short-term interest rates are rising.

Here, for example, is the latest look at interest rates on the five-year bond, which are hitting multiyear highs.

One of the steadiest voices of bullishness in recent years has been David Zervos of Jefferies, who has argued for a long time that a reflationary Fed was the bullish investor's best friend.

He seems to be taking a new tone in his latest note, titled, "The Dollar Rains On The Fed's Parade."

He writes:

QE is ending. Those around the FOMC table, the ones who fought the fight, should be out there taking a victory lap. But these victory laps for the good guys — Yellen, Evans, Dudley and Lockhart — look to be on shaky ground. Their speeches this week have sounded warning bells not trumpets. And to be sure the message was complicated and confused. On the one hand we heard — "let's not get ahead of ourselves," and on the other hand we heard "let's prepare for higher rates than the market is forecasting." These are not the usual "I got your back" speeches from the doves. Those came back in the easy BTD days. Of course, we all know the Fed has our back if it all goes wrong, but none of us know who has our back when it all goes right. So as the economy enters this p
eriod, and QE is turned off, the message gets muddled.

Zervos emphasizes he thinks things are due to get very 
sloppy, as the Fed eases off the gas pedal. For now he's predicting some messy times and volatility ahead.


72% of Americans Believe That The Recession Is Still On

Americans have a bleak outlook about both the nation's financial health and their own, according to the 2014 American Values Survey released Tuesday by the Public Religion Research Institute.

The Ford Foundation-funded study revealed nearly three out of every four Americans (72 percent) believe the recession is still on.

And fewer than one out of 10 Americans (7 percent) say they are in excellent financial health themselves. About a third of the people in the survey said they had to cut back on food in the last year to save money.

Nearly half of those polled said the American dream once held true but doesn't anymore, while 7 percent said the dream never held true.

Two-thirds of adults believe the economic system unfairly favors the wealthy.

Prosperity in the nation continues to divide Americans along race and ethnic fault lines. Blacks and Hispanics are facing economic insecurity at double the rates of whites.


Thursday, September 25, 2014

A Voice From The Past Has Relevance Today......AN ABSOLUTE MUST READ!

Babson's Warning, A Voice From The Past Has Relevance Today

A crash is coming, and it may be terrific. .... The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed. Wise are those investors who now get out of debt.

The above words could easily have been stated by me or a 
few others who currently predict a coming crash in the markets.

But they were not. The statements above were made by investor Roger Babson at a speech at the Annual Business Conference in Massachusetts on 5th September, 1929.

Mr. Babson's prediction was not a sudden one. In fact, he had been making the same prediction for the previous two years, although he, in September of 1929, felt the crash was much closer.

News of his speech reached Wall Street by mid-afternoon, causing the market to retreat about 3%. The sudden decline was named the "Babson Break."

The reaction from business insiders was immediate. Rather than respond by saying, "Thanks for the warning—we'll proceed cautiously," Wall Street vilified him. The Chicago Tribune published numerous rebuffs from a host of economists and Wall Street leaders. Even Mr. Babson's patriotism was taken into question for making so rash a projection. 

Noted economist Professor Irving Fisher stated emphatically, "There may be a recession in stock prices, but not anything in the nature of a crash." He and many others repeatedly soothed investors, advising them that a resumption in the boom was imminent. Financier Bernard Baruch famously cabled Winston Churchill, "Financial storm definitely passed." Even President Herbert Hoover assured Americans that the market was sound.

But, 55 days after Mr. Babson's speech, on 29th October, 1929, the market suddenly went into a free-fall, dropping 12% in its first day.

Today, most people have the general impression that on Black Friday, the market crashed and almost immediately, there were breadlines. Not so. In the Great Depression, as in any depression, the market collapsed in stages. The market did not reach its bottom of 89% losses until July of 1932.

Along the way, thousands of banks and lending institutions went belly-up. Thirteen million jobs disappeared.

And of course, the political leaders of the day did their bit. They implemented knee-jerk "solutions" that actually worsened the situation. Restrictive tariffs, gold confiscation, and a more dominant government were employed, just as they will be this time around.

So, as the market tumbled, we would imagine that Babson came to be praised by Wall Street for his insight, but in fact, the opposite occurred. Having accused him of being utterly incorrect in September, they later accused him of having caused the depression. AMAZING HOW HUMAN NATURE RESISTS THE TRUTH!

So, was Babson's prediction a lucky guess? Did he simply observe the bull market and arbitrarily predict the opposite of the trend of the day to see what would happen? Not at all.

Such predictions are not guesswork, nor are they attributable to a vision seen in some crystal ball. Such crashes are entirely predictable. When any major bull market becomes overbought; when too many investors begin buying on margin because they can't come up with the purchase price for stocks; when they then become even more obsessive and borrow money to buy on margin, the market has become a house of cards, waiting for the slightest breeze to come along.

So what do we take away from this? 

First, we can be certain that as the present-day house of cards begins to shake, there will be no warnings from Wall Street. In fact, quite the opposite. Their bread gets buttered by buyers. They will be adamant (and even, in many cases, truly believe) that the sky is the limit and investors should buy, buy, buy, as there are fortunes to be made by doing so. And investors, watching the rise, will fall all over each other, just as in 1929, buying with both hands.

This time around, the crash and its byproducts will be more extreme than in 1929, as the bubble itself is more extreme. And Wall Street can count on television and a media that has a vested interest in keeping the charade going as long as possible. It will also be more extreme, as the governments of much of the world are now broke and can only worsen their respective economies through the customary "solutions" that governments always employ—tariffs, confiscations, greater government control, etc.

Finally, the aftermath will be more extreme, as—unlike in 1929, when most people actually believed in the government—this time around, there will be dramatic unrest.

Just as in 1929, those who are declaring that "the Emperor has no clothes" are few in number, and their viewpoint is most certainly not put forth in the conventional media. For this reason, it's understandable that the great majority of people invariably ignore the Babsons of the world as Chicken Littles and blithely charge toward the cliff like lemmings.

Those who think independently and understand that history is repeating itself are focusing their attention on finding a way out of being a casualty in the train wreck that's coming. This is difficult to do, as invariably, the closer the event becomes, the more difficult it is to swim against the tide. For this reason, even many who conclude that the end is near often fail to act to save themselves and their families.

The great temptation is to decide, "Maybe it won't be so bad. Maybe I can live with it." And in fact, for most people, this will be the prevailing view—that although their personal situation will be diminished in many ways, the crashes will be tolerable.

The question is whether we wish to make the pre-emptive effort to create a life that is far better than tolerable, and possibly even improved, whist the opportunity for doing so still exists.

150 Years Of Global Monetary Policy......A GREAT GRAPHIC!

150 Years Of Global Monetary Policy

The chart below shows the key global events that have influenced monetary policy for the 4 major legacy central banks: the US, UK, Germany and Japan since the mid-19th century. 

If there is one thing to "learn" from the history of monetary policy it is that there is nothing to learn from the history of monetary policy: after all, "this time is always different" when the voodoo priests in charge of it all try to make a bubble-blowing, kneejerk-response "science" out of something that only a mother could call art.

The Illustrated Guide To Keynesian Vs Austrian Economics................

The Illustrated Guide To Keynesian Vs Austrian Economics


Wednesday, September 24, 2014

How To Game A Rigged Market............

How To Game A Rigged Market

Markets are on alert.Investors seem a little spooked Currency volatility has picked up as the US dollar has strengthened. And yet despite these minor issues there 
remains a deeper sense of calm among the arrogant maters of the universe. It is the sort of quiescence born of hubris, insiders' knowledge that the nature of financial markets has changed, and they believe only in a way that favors them.

In the past, money sat at the center of the economic system. When money was created, it moved slowly through the real economy toward the fringes where assets were located. Too much money caused a bull market; too little and we got the reverse. Now asset prices sit at the center of the system and money is relegated to the periphery. Every right-minded person knows the main role of a central bank is to create sufficient money to stop asset prices going down, because if this can be achieved then a little of that elixir may just flow into the real economy and create growth.

Indeed, talk to a central banker, preferably a retired one that can afford to tell the truth, and they will admit that they have one long term goal which is to stop asset prices from going down the following week. 

This is because there is so much debt linked to these assets that should prices start to fall then the mother of all margin calls would materialize. 

Most central bankers have read Irving Fisher's great 1934 tome The Debt Deflation Theory of Great Depressions and they don't want something similar starting on their watch.

To achieve the desired results, central banks have bought bucket loads of government bonds, on the simple idea that if the anchor rate was pulled down, then all rates would follow including the discount rate used to value long-dated assets, and thus the value of the said assets would go up. In the case of equities, the particular traits of investors in these markets has meant that central bankers could play a more indirect role.

Today, most money managers can be described as having five core beliefs, or operating principles:

(i) it is not certain that central banks can control asset prices forever and it could end in tears. !!!!

(ii) I am one of the few investors smart enough to understand this. !!!!!! ????

(iii) most other money managers are dumb enough to believe that central banks really can control asset prices.  BUT NOT THEM! HUBRIS OF THIS MAGNITUDE IS VERY DANGEROUS TO BOTH YOUR WEALTH AND OUR ECONOMY.

(iv) so despite being smart, and knowing better, I have to keep buying shares. NO PLACE TO GO BUT STOCKS. THIS ISN'T A SOLUTION IT'S A TRAP!

(v) but because I am so smart, I will see ahead of the others when the time is right to get out, and in any case I have some very good risk control systems which will kick in and prevent me suffering too huge a loss.   REALLY? !!!! 

The astute reader will have recognized a sophisticated version of the prisoner's dilemma taken from game theory; i.e., the system continues to work so long as nobody breaks the rules. However, to escape the dilemma in good shape, it is necessary to be the first one to break the rules. !!!!!!! OR IF YOU ARE REALLY SMART AND CAPABLE OF THINKING INDEPENDENTLY, YOU NEVER BUY INTO THIS KIND OF LAZY, IGNORANT HERD THINKING IN THE FIRST PLACE.

The implicit reasoning in this assumption is that if the investor cannot be first out then they can at least be second or third. However, such a stance rests upon two key assumptions that are less than rock solid to say the least.

The money manager in question has the insight or the algorithms to get out of the market in good time, and this early warning system will be different from the system used by rivals. We saw this proposition tested in 1987 and in 2007 and the results were not pretty. When the sell notices all kick in at the same time, there will be no exit.  WE ARE HEADED FOR ANOTHER EXAMPLE IN THE NOT TO DISTANT FUTURE.  

Markets will remain open and will be tradable. I recall that in October 1987 that the Hong Kong stock market simply closed its doors for four days and when it did re-open prices were not the same.

In short,It makes little sense to stay invested, we have reached a point where protection against an untidy denouement to the present market phase is of little value to your portfolio. 

It should be noted that a 50/50 portfolio of long-dated US treasuries and short-dated dim sum bonds has outperformed the S&P 500 since November 2013 by a solid 4%, and with much lower volatility. When a very defensive portfolio starts to outperform the best stock market in the world, it is seldom good news.

The Decline Of America's Economic Model In 1 Simple Chart.....ANOTHER PESKY FACT!

The Decline Of America's Economic Model In 1 Simple Chart

"You can't eat GDP, and you can't live in a rising stock market" 

is the striking phrase from NY Times' Neil Irwin as he offers the most damning chart of the decline of America's Economic Model. 

The most important thing to understand about today's economy is: Around 1999, growth in the United States economy stopped translating into growth in middle-class incomes.

The choice, by Greenspan and carried on by his followers, was to enable the financialization of the US economy for the benefit of the few, at the cost of the many. 

Americans feel disappointed by the economy; the new data show that they have good reason.

Syria Is 7th Country Bombed By 2009 Nobel Peace Prize Winner.........

Syria Is 7th Country Bombed By 2009 Nobel Peace Prize Winner

The U.S. began bombing targets inside Syria, in concert with its lovely and inspiring group of five allied regimes: Saudi Arabia, Bahrain, United Arab Emirates, Qatar, and Jordan.

That means that Syria becomes the 7th country bombed by the 2009 Nobel Peace Laureate – after Afghanistan, Pakistan, Yemen, Somalia, Libya and Iraq.

The utter lack of interest in what possible legal authority Obama has to bomb Syria is telling indeed: empires bomb who they want, when they want, for whatever reason (indeed, recall that Obama bombed Libya even after Congress explicitly voted against authorization to use force, and very few people seemed to mind that abject act of lawlessness; constitutional constraints are not for warriors and emperors).

It was just over a year ago that Obama officials were insisting that bombing and attacking Assad was a moral and strategic imperative. Instead, Obama is now bombing Assad's enemies while politely informing his regime of its targets in advance. It seems irrelevant on whom the U.S. wages war; what matters it that it be at war, always and forever.

Six weeks of bombing hasn't budged ISIS in Iraq, but it has caused ISIS recruitment to soar. That's all predictable: the U.S. has known for years that what fuels and strengthens anti-American sentiment (and thus anti-American extremism) is exactly what they keep doing: aggression in that region. If you know that, then they know that. At this point, it's more rational to say they do all of this not despite triggering those outcomes, but because of it. Continuously creating and strengthening enemies is a feature, not a bug, as it is what then justifies the ongoing greasing of the profitable and power-vesting machine of Endless War.

Syria is a multi-tiered proxy war. As the disastrous Libya "intervention" should conclusively and permanently demonstrate, the U.S. does not bomb countries for humanitarian objectives. Humanitarianism is the pretense, not the purpose.

Tuesday, September 23, 2014

Investors Have Been Seduced Into Feeling Good..........

Investors Have Been Seduced Into Feeling Good

On Wednesday night, in an excerpt from Seth Klarman's latest letter to investors. Klarman said, among other things, that we are marching towards a re-creation of the 2007 market.

Klarman writes:

"It's not hard to reach the conclusion that so many investors feel good not because things are good but because investors have been seduced into feeling good—otherwise known as 'the wealth effect.' 

We really are far along in re-creating the markets of 2007, which felt great but were deeply unstable when shocks started to pile up."

And Klarman doesn't think the Fed is doing enough to keep markets in check.

"Even Janet Yellen sees 'pockets of increasing risk-taking' in the markets, yet she has made clear that she won't raise rates to fight incipient bubbles. For all of our sakes, we really wish she would."

Klarman also notes that in the current low-rate environment, investors have increased risk taking as the need for greater returns requires greater risk-taking with a shrinking potential payoff:

"The pressure to reach for return virtually ensures that many investors will take greater and greater risk for less and less potential reward at market peaks... A recent brokerage report excitedly touted the new HoldCo PIK Toggle notes of a Croatian consumer goods retailer. 
Nearly every word of that description is a flashing red light to seasoned investors." 

Stocks Are More Crash-Prone Than Ever..........

Stocks Are More Crash-Prone Than Ever

Bill Fleckenstein left a CNBC anchor questioning her faith in the status quo in this brief interview. 

As she pestered him with questions about 'missing out on the rally', Fleckenstein snapped back "so what? I don't care, it doesn't matter" asking rhetorically "when the market declines, how fast will it all be taken away from you?" 

Fleckenstein then warned "I don't think we will get through October without some accident," adding that "the stock market is more crash-prone than ever." When pressed again about sitting on the sidelines, Fleckenstein rebukes, "if you want to pursue idiots like the Fed doing crazy policies, and if you think you can get out in time, go for it. I don't want to try to do that." EXACTLY AS I HAVE BEEN SAYING....



"As democracy is perfected, the office of the President represents, more and more closely, the inner soul of the people. On some great and glorious day, the plain folks of the land will reach their heart's desire at last and the White House will be occupied by a downright fool and complete narcissistic moron." 

                                                                            H.L. Mencken

Monday, September 22, 2014

Goldman's Former Head Of Housing Research Predicts Housing Crash..................

Goldman's Former Head Of Housing Research Predicts Housing Crash, Recession Within Three Years

When a former Goldman executive and the prior head of its housing research team comes out with a shocking analysis so contrary to what the same individual would do in his "former life" when he would be extolling the "inevitable" rise of home prices from here to eternity and beyond, and also throw in an open letter to none other than president Obama, predicting at least a 15% crash in home prices in the next three years, a move which would without debt catalyze the next US recession, it is time to pay attention. 

Meet Joshua Pollard, who in February 2009 took over coverage of US Housing at Goldman Sachs.  His point, in short: "House prices are 12% overvalued today. They have already started to decline. Today's misvaluation matches the excess of 2006-07, just before the Great Recession... 5 of the last 7 US recessions were led by a weakening housing market... I am lamentably confident that home prices will fall by 15% or more within three years." Or, as some may call it, crash.

When housing has finally tumbled, it will mean that the Fed's loss of control of its micromanagement experiment in central-planning is now official. Which will also mean that that far greater repository of household wealth, financial assets, which is where nearly $70 trillion of US assets are parked, will be on its way to a long-overdue "fair value", ex-Fed repricing.

When that happens, whether a 15% or 51% drop in US housing, will be the least of anyone's concerns.

A New Fed Playbook for the New Normal......AN ABSOLUTE MUST READ!

A New Fed Playbook for the New Normal

While many economists and market watchers have failed to notice, we have entered a new chapter in the short and checkered history of central banking. This paradigm shift, as yet unaddressed in the textbooks, changes the basic policy tools that have traditionally defined the sphere of macroeconomic decision-making.

The job of a central banker is supposed to be the calibration of interest rates to achieve the optimal rate of growth for any particular economic environment. It is hoped that successful decisions, which involve perfectly timed moves to raise rates when the economy overheats and lower them when it cools, would bring consistency and stability to the business cycle that many fear would be dangerously erratic if left unmanaged. That's the theory. The practice is quite different.

Over the past thirty years or so, interest rates have been lowered far more often than they have been raised. This makes sense. Bankers, being human, would rather err on the side of good times not bad. They would rather leave the punch bowl out there a little too long than take it away too soon. Over time, this creates a huge downward bias. But things have really become distorted over the past eight years, a time period during which interest rates have never gone up. They just go down and stay down.

Back in the early years of the last decade, Alan Greenspan ventured into almost unknown territory when he lowered interest rates to 1% and left them there for more than a year. But in today's terms, those moves look hawkish. In the wake of the 2008 financial crisis, Ben Bernanke brought interest rates to zero, where they have remained ever since.

But old habits die hard, and economists still expect that rates can and will go back to normal. They assume that since the economy is now apparently on solid footing, the period of ample accommodation is over. 

In reality, we have built an economy that is now so leveraged and weak that it needs zero percent interest rates just to tread water.

Based on statistics from the Bureau of Economic Analysis, from 1955 to 2007 Fed Funds rates were on average 230 basis points higher than average GDP growth (5.7% vs. 3.4%). But from 2008-2013, Fed Funds rates have been less than half the rate of GDP growth (0.44% vs. .92%). Rates lower than GDP, in theory, should stimulate the economy. But instead we are stuck in the mud.

Twenty-odd years ago the textbooks still seemed to work. A recession hit in 1991, which brought GDP close to zero. In response, the Fed cut rates by more than 200 basis points (from 5.7% in 1991 to 3.5% in 1992.) As expected, 1992 GDP rebounded to a reasonably healthy 3.6%. But the rate cuts did little for asset prices. In that year the S&P 500 crept up just 4.4% and the Case-Shiller 10-City Composite Index of home prices actually fell almost 2% nationally.

Compare that to 2013. With Fed Funds still near zero, GDP actually fell to 2.2% from 2.3% in 2012. But asset prices were a different story. Stocks were up 26% and real estate up 13.5%. It would appear that interest rates have lost their power to move GDP and can now only exert pressure on asset prices. 

As a result, rates are no longer the main attraction in central banking. The real action takes place elsewhere.

The Fed and other central banks have made the active purchase of financial assets, known as quantitative easing, to be there main policy tool. QE is a more powerful drug than interest rates. It involves actual market manipulation by the purchases of bonds on the open market. Whereas zero interest rates could be compared to a general stimulant, QE is a direct shot of adrenaline to the heart. When the next recession comes, the syringe will likely come into greater use.

Since 1945 the U.S. economy has dipped into recession 11 times. The average length of the recoveries between those recessions was 58.4 months, or just under five years. The current "recovery" is already 73 months old, or 15 months longer than the average. 

How will the Fed deal with another contraction which seems likely to begin within the next year or so, with rates still at or very close to zero? 

More QE of some sort appears to be the only option.

Given that reality, the big question is no longer whether the Fed will raise or lower rates, but by how much they will ramp up or taper off QE. When the economy contracts, QE purchases will increase, and when the economy improves, QE will be tapered, and may even approach zero for a time. But interest rates will always remain at zero or, at the least, stay far below the rate of inflation. This will continue until QE loses its potency as well.

Mainstream economists will be quick to dismiss this theory, as they will say that policy is now on course for normalization. Although economic growth in 2013 was nothing to write home about, the set of indicators that are normally followed by most economists, point to modest economic improvements, exuberant financial markets, and falling unemployment. 

But if that is really the case, why has the Fed waited so long to tighten?  !!!!!!!!!

The truth is the Fed knows the economy needs zero percent rates to stay afloat, which is why they have yet to pull the trigger. The last serious Fed campaign to raise interest rates led to the bursting of the housing bubble in 2006 and the financial crisis that followed in 2008. This occurred despite the slow and predictable manner in which the rates were raised, by 25 basis points every six weeks for two years (a kind of reverse tapering). 

At the time, Greenspan knew that the housing market and the economy had become dependent on low interest rates, and he did not want to deliver a shock to fragile markets with an abrupt normalization. But his measured and gradual approach only added more air to the real estate bubble, producing an even greater crisis than what might have occurred had he tightened more quickly.

The Fed is making an even graver mistake now if it thinks the economy can handle a measured reduction in QE. 

Similar to Greenspan, Bernanke understood that asset prices and the economy had become dependent on QE, and he hoped that by slowly tapering QE the economy and the markets could withstand the transition. But these bets will lose just as big as Greenspan's. The end of QE will prick the current bubbles in stocks, real estate, and bonds, just as higher rates pricked the housing bubble in 2006. And as was the case with the measured rate hikes, the tapering process will only add to the severity of the inevitable bust.

So while the market talks the talk on raising rates, the Fed will continue to walk the walk of zero percent interest rates. The action has switched to the next round of QE. In fact, since none of the Fed's prior QE programs were followed by rate hikes but by more QE, why should this time be any different? The most likely difference will be that eventually a larger dose of QE will fail to deliver its desired effect. When that happens, who knows what these geniuses will think of next. But whatever it is, rest assured, it won't be good.

Sunday, September 21, 2014





Then I saw thrones, and they sat on them, and judgment was given to them And I saw the souls of those who had been beheaded because of their testimony of Jesus and because of the word of God, and those who had not worshiped the beast or his image, and had not received the mark on their forehead and on their hand; and they came to life and reigned with Christ for a thousand years.

Revelation 20:4