Royal Bank of Scotland to investors: 'Sell everything'

Politically, it may or may not have backing. But that doesn't matter if it is insolvent.

Technically, it already is. Its liabilities exceed its assets on a mark-to-market basis. If it was me or you or Lehman Brothers, and not an entity given monopoly power over the world's reserve currency (i.e. the ability to keep creating monetary inflation), it would collapse. Plenty of central banks have gone bankrupt for less reckless behavior than what we have seen recently. And we don't have a birthright to be the world's reserve currency. So as "nutty" as you think it is -- because the United States is special somehow and it's just unthinkable to you, and anyone who says otherwise is a "nutcase". ... Why not try to at least understand my posts rather than being dismissive?

Eventually, the losses on the Fed's balance sheet from their interventions the last 8 years are going to have to be borne by someone. How do you think that ends? Just because it's not on your radar screen doesn't mean it isn't reality.

That balance sheet -- in the trillions of dollars -- also makes it harder and harder for it to do what you call "monetary policy." They will never be able to raise interest rates beyond a certain point, and drain all of the liquidity they flooded the banking system with, without selling the assets they hold at a massive discount. It will be QE in reverse -- if they ever try (and they can't and won't) the market will front run them, the way it did on the way up.

So they are fucked -- here to stay or not. They don't care, though, because they are not as in control as you think. They are not worried about a year from now or 5 years from now or a decade from now. They are flying by the seat of their pants and just trying to keep the mess they created from getting out of hand.

At a certain point in the future, the only way the Federal Reserve will be able to survive is they are given new powers to finance their own deficits (which will come when they lose control of rates -- and it WILL happen. The markets will take them back) via reserve creation. Unfortunately, that also comes with a breakdown of the global monetary system and a loss of all credibility.

But I get it. You don't understand so. ... nutcase.

 

Weak close yesterday. ... and U.S. equity futures getting dumped hard overnight, as I suspected.

But Janet Yellen is back on Capital Hill today for day 2 of her testimony, so maybe she can "soothe" markets some more.

Seriously, this is the next leg down in U.S. equities. The Nasdaq 100 is leading the way. But for bigger stocks, 1810 to 1815 on the S&P 500 is the next level to get through, and then it will break any support it had. If the markets open where the futures are right now (5:15 am, so a lot can change between now and 9:30), we are at around 1817. If it doesn't get through there easily today, there will be a push-pull battle around this level. I don't think it is going to make us wait to get through, but we'll see. Yellen could finally just say "uncle" when she testifies and spur a short-term rally.

The only thing that is going to permanently stem a sell off -- because stocks are still way overvalued -- is them stepping in with an even bigger dose of quantitative easing. To her credit, she is trying to do the right thing. It's just too late. There is a price to pay for creating a $4.5 trillion balance sheet propping up markets by buying assets, and keeping rates at zero percent for a decade. It created huge distortions -- asset price inflation. This is deleveraging. And it is going to be very hard on a lot of people, unfortunately. But she is actually TRYING to do the right thing. Bernanke would have never tried to take his foot of the accelerator, the way she did, and he'd already have announced Qe4 -- he'd even spin it as a courageous act. If she doesn't relent, she will get the entire blame for a crash. ... even though she was only a part of the problem. The seeds of this go back to Alan Greenspan, and Ben Bernanke did most of the damage. Even though Yellen was there as part of the FOMC all along. It is going to be interesting to see when and how she relents, and tries to start pumping air back in. If she doesn't, we are better off in the long run -- and we can start to recover. But the political pressure will be too great. And they can't do anything immediately, because they backed themselves into a corner with their rhetoric the last year and they need to save some face. Markets are going to press them now. And markets can be relentless, when they take back control. The BOJ is finding that out right now. Since they announced negative rates (which was actually a disappointment, because markets wanted more asset buying), the yen has appreciated in a stunning move. And Japanese stocks have sold off. It's the exact opposite of what they were trying to accomplish. "Monetary policy," ain't working. They have no control over the mess they created at the moment. Which is why I am ready for a new level of insanity. I fully expect them to come in with flamethrowers to try to buy more time. I hope I am wrong.

 

Today is probably a day a lot of people are going to want to watch. At least the morning is going to be eventful and full of volatility. At 7:15 am, U.S. equity futures are still tanking. The Swedish central bank reentered the currency wars overnight, going farther into negative territory. It's like rats panicking and fighting over a morsel of cheese -- trying to beggar they neighbor for growth with short-sighted panicked moves that sell out the future. All of the "monetary policy" has killed the global economy. The U.S. stock market is going to open at a new low barring something seriously changing. Bond yields are way down -- very stunning move in treasuries-- really for the last several weeks. The dollar and its ridiculous bubble have been getting sold. Japanese yen is way up some more overnight -- it is stunning. Currencies are supposed to be stable and not see these kinds of 1, 2 percent daily moves. This kind of currency move screams that something is very wrong somewhere. It is unstable. Gold has been catching panic buying all night -- a $40 + move overnight. And that is off of a huge move already so far this year. There is going to be huge pressure on central banks to do something soon, if markets keep at it. Even as I type this, the yen has come back a little, and U.S. equities are reacting sort of positively, so I am wondering if someone flapped their gums in Asia -- or if they actively went in and intervened in the curremcy market to try to price fix it (the markets figure out those kinds of interventions quickly). The problem as I see it, it has to be the Fed -- and Yellen is trying so hard to hang tight. The water pistols from the BOJ and ECB are not enough anymore. The Bank of Japan has looked impotent the last 2 weeks. Everyone is looking at the Fed now. Until they capitulate, I'd expect a lot more of this.

 

Here was exactly what I was watching. The BOJ stepped in and sold yen like mad while I was typing-- in full panic mode over what they were seeing.

Bank Of Japan Intervention Sends USDJPY Soaring | Zero Hedge

That is a desperation move. It stopped the bleeding for the time being. But these kinds of things no longer have any staying effect -- which is absolutely jaw dropping. The most basic thing about trading has always been that you do NOT fight central banks. Why I typed this yesterday:

Three years ago, a currency intervention like that would have turned the tide and sent people running with their tails between their legs. Now, it's just not enough. They have no control ... they are going to have to do much more than that or else the market is going to keep pressing and killing them.

 

1) If that was a currency intervention by Japan this morning, and not someone randomly deciding to sell a ton of yen all at once, it had no lasting effect.

2) The S&P 500 is butting right up against that support level I pointed out this morning -- it was the whole time Janet Yellen flailed around in front of TV cameras. If it can't hold here today (it might), all bets are off about how far down the next leg is, before there is a bounce within the bear market.

Oh, and CNBC got some comments from noted "nut" and bond fund manager Jeff Gundlach (known as the new "bond king") about what is going on:

About the negative rates: "The last bullet of monetary policy faith, and they are harming, not helping. What will come next is an abandonment of the 'In central banks we trust' mantra. And a push for fiscal economic support."

About the huge move down in treasury yields and the drubbing the stocks (and credit default spreads) big money center banks are taking: "The collapse in the financial stocks is synonymous with an abandonment of faith in central banks, fueling a flight to quality."

What do you do, cran, when orthodoxy starts to sound more and more, um, "nutty"?

By the way, that "flight to quality" is a perception thing, not a reality thing. Just as the run up in stocks through all the QE was not based on anything fundamental or sustainable. If the Federal Reserve stepped away tomorrow, and left full control of the yield curve completely to buyers and sellers (i.e. -- a market), I guarantee that 10-year yields would be significantly higher than 1.7 percent. If you see the obviousness of that statement, it should tell you that that market is distorted. But people will now scurry on over there, as they start to freak out. ... until they get killed. It's unfortunate, really.

 

Long post coming. Read it if you want. Don't, if you don't want to. ...

Tell me all about about my "predictions," cran. After that post from you over and over again (and no, I am not making predictions, just pointing out reality), a few years ago, I was ready to bet you when the S&P was around 2000 that it would be much lower within 2 years. As I posted when I was ready to make that bet -- just to shut you up with a real prediction -- that was a gamble, because even though all of the phony liquidity that you didn't understand was / is driving the world, I couldn't say for sure that it was all going to crash down on any timetable. Even a Madoff type scheme can go on for years before it crumbles -- and the Fed has authority that Bernie Madoff didn't have. I just knew / know that it will happen eventually -- running up debt and creating huge misallocations of capital and mispricing of risk via monetary manipulation is not healthy for an economy.

The time is likely now -- that is not a prediction. I am watching just as you are. But they have reached the point where they are pushing on a string, and they are losing credibility. All that is left is all of the debt and mispricing of risk they they created -- and the problem areas that are starting to crack. That means A LOT of deleveraging -- which means pain. It's just wild how the whole world is waking up to it all at once. I am ready stories like this now.

Some Hedge Funds Want to Make Subprime Auto Loans Next Big Short

Bloomberg wasn't writing those stories even 3 months ago, even though they were out there for the finding.

It was hysterical to you, a year or two ago, when I was talking about how the Fed was fueling a subprime auto loan bubble. I was chicken little. I was making "predictions" or I was "rooting" for bad things to happen.

It's the contrary. I actually gave a shit.

There are credit events ready to happen in so many places that any number of things could be the next catalyst for what is an inevitable credit event. They created a lot of instability. Will it be in consumer credit -- student loans, subprime auto loans, credit card balances? Will it be some European bank (where credit default swaps right now are signaling distress) that is loaded with bad loans? Will it be a sovereign default (they were rioting in Greece again this morning)? The monetization these central banks did has created messes all over the place. And all I have done in the posts you are talking about is point a reality you didn't want to face -- and thought was ridiculous.

You are going to realize it at some point, even if you don't want to acknowledge it. This is not going away until monetary and fiscal sanity gets reintroduced. It could have been done voluntarily -- well before they made it worse over time and backed themselves into a corner at the lower bound of rate manipulation. But instead, it looks like it is going to happen in a very disorderly way, with series of escalating crises. In the mean time, we are stuck in a sad, low-growth economic environment due to all of the misallocation of capital they created -- the economic recovery off of 2008 wasn't much of a recovery, and it is precisely because of what I posted about that you don't get.

You seem to want to hand over the most important market there is to a bunch of clueless political appointees who manipulate the cost of capital (what a market could determine itself). ... in cahoots with the banks they control. Why? The idea behind the Federal Reserve was that they would introduce stability somehow to the world. How stable are things when the dollar has lost 99 percent of its value due to what they have done? They exist to diminish your purchasing power so your government can keep wasting money and running up debt. It's insidious. You have blathered about 2 percent inflation as some new "target." Their mandate is actually stable prices. How that equates to reducing your purchasing power by 2 percent a year is Orwellian. Even if that 2 percent nonsense was anything other than bullshit -- them shifting the paradigm so the baseline has them monetizing debt rather than doing no harm -- i.e. robbing savers to keep a debt bubble propped up -- how does robbing you of 2 percent of your savings every year promote stable prices?

I posted that video from CNBC with Jeff Gundlach's comments yesterday. He was quoted by Reuters later in the day saying, "The market is going to humiliate the Fed. It's bizarro to have rate hike projections while at the same time, Yellen is talking about negative rates. What a mess."

I wanted you to call him a nutjob and try to associate him with the Ku Klux Klan or something. Too bad. When you have the Jeff Gundlachs of the world saying stuff like that, you'd think you might realize there is something to the posts you found so laughable.

Honestly, it's a little disingenuous on Gundlach's part now. He wasn't complaining during the QE program. He was too busy collecting free money by front-running the idiots on the Fed's trading desk who that were overpaying him for trillions of dollars of paper to fuel a phony market bubble economy -- with people like you cheerleading it on, and having little clue about what it really entailed. That balance sheet doesn't just go away. It sits there like an anchor on our economy. It was so damned reckless -- with far-reaching consquences that the typical American doesn't understand. ... why they get away with it -- and yeah, it infuriates me. Where was Jeff Gundlach then? Now that the party is ending, he is a critic. ... because there is no more free money.

One other thing. Since you brought it up. I am not cheerleading the price of gold. But I have been buying gold with money I earn since they announced TARP in 2008 -- in dollar terms, it was around $730 an ounce then. I hate how late I was in understanding where we were heading. I don't "invest" in gold, the way you think. I don't speculate it in. I own it the way you own dollars in your bank account or under your mattress. While your dollars have lost value (thanks to that the monetization of debt you are so in favor of), gold has more than held its value during that time period. You have been losing money in real terms. I haven't. The last few years (when you continually told me the price had "collapsed") all the currency wars I post about have created a ridiculous and irrational dollar bubble -- one that is starting to burst now (why gold had what you think is a good week). I largely owned gold in euro and yen terms during that period you thought the price "collapsed." It's pretty simple. What you see as some orderly policy -- is really a bunch of rats scurrying around fighting a currency war because everyones debt levels are out of control. I own gold because historically it has always been a much better store of wealth than any fiat currency. I hedge it with the currency of whatever central bank is doing the most to devalue and is winning the currency war -- it has been a rotating game and will continue to be. It is why my "rants" aren't just about the Federal Reserve. They are about the ECB and BOJ and PBOC, etc. too. It's actually ridiculously simple. Even though gold in dollar terms looked like a bad bet to you, gold in yen and euro terms did quite well during the "collapse" you think you saw. I always found funny, by the way, because I started that thread when gold was about to reach $1,000 an ounce -- it seemed like a milestone, so I started a thread. The price in dollar terms during the "collapse" you were telling me about has not come back that far. ... at least yet.

In any case, I just keep adding when I can. You think I probably had this great week or a great year so far -- "investing" in gold as you understand it -- as the price is up 15 percent or so in dollar terms. But I actually got caught offside a bit -- while I knew the dollar has been topping off -- the dollar index went months butting up against 100 and couldn't get through -- I was moving too slowly in taking off my short positions in other currencies. I was all out of a short euro position and owned a lot of gold in dollar terms already, but up until a few days ago, I was still way too short the Japanese yen, which is on a scary run. I was actually shocked by how the markets have humiliated (in Jeff Gundlach speak) the BOJ and laughed off their most recent "policy" move (in cranberry speak). So no, honestly, my world isn't quite what you think it is. My week was really good -- for reasons not related to any of this. But I am not making oodles of money "investing" in gold, the way you think you understand it.