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ES and the Great POMO Rally
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ES and the Great POMO Rally

  #361 (permalink)
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It's official: POMO will continue as needed after QE2 ends in June.
http://www.bloomberg.com/news/2011-04-19/bernanke-may-reinvest-maturing-debt-to-avoid-cold-turkey-end-to-stimulus.html

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Last edited by whatnext; April 20th, 2011 at 05:42 AM. Reason: USD chart
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How a big US bank laundered billions

Hope it's not irrelevant to the thread, but thought this piece from the Guardian interesting.

How a big US bank laundered billions from Mexico's murderous drug gangs | World news | The Observer

The "fix" seems to be on in more and more ways (forgive the pun).

Here are a few paragraphs:

"Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year's "deferred prosecution" has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine."

"More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn"

"At the height of the 2008 banking crisis, Antonio Maria Costa, then head of the United Nations office on drugs and crime, said he had evidence to suggest the proceeds from drugs and crime were "the only liquid investment capital" available to banks on the brink of collapse. "Inter-bank loans were funded by money that originated from the drugs trade," he said. "There were signs that some banks were rescued that way."


"What happened at Wachovia was symptomatic of the failure of the entire regulatory system to apply the kind of proper governance and adequate risk management which would have prevented not just the laundering of blood money, but the global crisis."

Every moment I wake up I realize I know nothing, and then I smile...
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  #363 (permalink)
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with everything in life, criticizing is the easy part. the question is, what should have been done instead?

so my question about the fed's action:

1. what would have been a better solution?
2. would we (U.S.) be better off because of # 1?
3. my answer, probably not

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  #364 (permalink)
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Here's another way to look a the "rally" from Zero Hedge:


"As silver is about to break $45 any second, we thought we'd take a minute to show the change in the S&P in real terms, i.e. adjusted for the plunge in the dollar. When one compares the YTD change in the S&P compared to the YTD change in DXY, one gets... the following. To all those who hold stocks: congratulations - you have only lost 0.18% in purchasing power year to date. To everyone else: we can only hope Goldman's next downgrade of crude is more effective. That, or take a bicycle to work."

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  #365 (permalink)
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Big News... Might want to ready your supplies.


Quoting 
"All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?

From Xinhua:
China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.
And as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:
China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.

However, these strategies can only treat the symptoms but not the root cause, he said, noting that the key is to reform the mechanism of how the reserves are generated and managed.
The last sentence says it all. While China is certainly tired of recycling US Dollars, it still has no viable alternative, especially as long as its own currency is relegated to the C-grade of not even SDR-backing currencies. But that will all change very soon. Once the push for broad Chinese currency acceptance is in play, the CNY and the USD will be unpegged, promptly followed by China dumping the bulk of its USD exposure, and also sending the world a message that US debt is no longer a viable investment opportunity. In fact, we are confident that the reval is a likely a key preceding step to any strategic decision vis-a-vis US FX exposure (read bond purchasing/selling intentions). As such, all those Americans pushing China to revalue, may want to consider that such an action could well guarantee hyperinflation, once the Fed is stuck as being the only buyer of US debt."


http://www.zerohedge.com/article/china-proposes-cut-two-thirds-its-3-trillion-usd-holdings
http://news.xinhuanet.com/english2010/china/2011-04/23/c_13842843.htm


I was tempted to put this in my "Waves and the Dollar" thread, out of spite, but a key point in it was that the major support level for the dollar has just become a resistance level. My 4 year symmetrical triangle chart of the dollar has a price target of 64 "if" it falls and 84 if it breaks upwards. My 30 year head and shoulders target is 35 "if" it falls 104 if it breaks up.

For those wondering - the people of Zerohedge will work with you if you have important information. They do take precautions and make precautions available for you. I was being "observed" before I started contacting them frequently and have stories of getting "scared strait" - but it wasn't ZH that caused it. I say that for those who might not even feel comfortable sending in information, much less calling, which is preferable in some instances. "Marla Singer" doesn't post any more because she's gotten five death threats. Reading posts from people like silvester17 nearly cures the new found apathy.

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  #366 (permalink)
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whatnext View Post
Reading posts from people like silvester17 nearly cures the new found apathy.

thanks.

as you can see, nobody answered the question and came up with a better plan. and I'll say it again. under the circumstances (interest rate at about 0%), there was not a big choice.

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I'll respond later tonight.

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Silvester17 View Post
with everything in life, criticizing is the easy part. the question is, what should have been done instead?

so my question about the fed's action:

1. what would have been a better solution?
2. would we (U.S.) be better off because of # 1?
3. my answer, probably not

1. Here are two of the many things that could have been done:

First, the completely obvious answer to what could have been done better is the Fed should have recognized the real estate/credit bubble when it was occurring. They in fact, did but pretended it was of no significance and allowed it to continue. This really began with Greenspan and then when Bernanke became Fed President, it was most likely made worse. I distinctly remember all of Bernanke's testimonies where he stated that he felt "Real Estate was not in a bubble, would not crash and if anything would simply plateau for a few years until everything else caught up with RE prices". Lol!!! They could have simply raised short term interest rates enough to stop the excessive speculation that was occurring in the Real Estate market. They could have also reduced the monetary supply by selling U.S. Treasuries and bringing long(er) term interest rates higher until the speculation in Real Estate cooled down.

The second important thing they should have done was to put a clamp down on the banks' excessive use of derivatives (Collateralized Debt Obligations, Credit Default Swaps and other covenant lite/Mezzanine financing arrangements) and the high risk taking that was affiliated with it. This would have stopped the massive securitization machine that came to be and would have made banks use far less risk because the mortgages that did not fit into the FNMA/FMCC criteria would have had to be held on their (the banks') balance sheets. As we witnessed, the fallout from the use of derivatives resulted in massive bank failures, money markets "breaking the buck" and giant mounds of garbage securities that have absolutely no secondary market and no bid to speak of.

The entire meltdown could have been prevented if they would have acted early enough. But we're talking about the Fed here. They're in it for themselves first and foremost. This meltdown afforded them with an even larger power grab.

2. We would obviously be way better.
3. I can't even imagine how you arrived with your conclusion, please explain.

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  #369 (permalink)
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Private Banker View Post
1. Here are two of the many things that could have been done:

First, the completely obvious answer to what could have been done better is the Fed should have recognized the real estate/credit bubble when it was occurring. They in fact, did but pretended it was of no significance and allowed it to continue. This really began with Greenspan and then when Bernanke became Fed President, it was most likely made worse. I distinctly remember all of Bernanke's testimonies where he stated that he felt "Real Estate was not in a bubble, would not crash and if anything would simply plateau for a few years until everything else caught up with RE prices". Lol!!! They could have simply raised short term interest rates enough to stop the excessive speculation that was occurring in the Real Estate market. They could have also reduced the monetary supply by selling U.S. Treasuries and bringing long(er) term interest rates higher until the speculation in Real Estate cooled down.

The second important thing they should have done was to put a clamp down on the banks' excessive use of derivatives (Collateralized Debt Obligations, Credit Default Swaps and other covenant lite/Mezzanine financing arrangements) and the high risk taking that was affiliated with it. This would have stopped the massive securitization machine that came to be and would have made banks use far less risk because the mortgages that did not fit into the FNMA/FMCC criteria would have had to be held on their (the banks') balance sheets. As we witnessed, the fallout from the use of derivatives resulted in massive bank failures, money markets "breaking the buck" and giant mounds of garbage securities that have absolutely no secondary market and no bid to speak of.

The entire meltdown could have been prevented if they would have acted early enough. But we're talking about the Fed here. They're in it for themselves first and foremost. This meltdown afforded them with an even larger power grab.

2. We would obviously be way better.
3. I can't even imagine how you arrived with your conclusion, please explain.

OK, we're not talking about the same thing.

what you mentioned is was what they could (should) have done before the meltdown. I'm talking about what they should have done after the damage was done. with other words what else than quantitative easing.

and for your conclusion that raising short term interest rates would have helped to prevent the meltdown is very questionable imo. you don't want to fix a problem by creating others. see attached charts.

I totally agree about the excessive use of derivatives. this should have been done. but then voices would appear: what about free market?

sounds familiar?

Attached Thumbnails
ES and the Great POMO Rally-2011-04-24_2234.png   ES and the Great POMO Rally-2011-04-24_2234_001.png  

Last edited by Silvester17; April 25th, 2011 at 12:12 AM.
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  #370 (permalink)
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Silvester17 View Post
OK, what you mentioned is was what they could (should) have done before the meltdown. I'm talking about what they should have done after the damage was done. with other words what else than quantitative easing.

and for your conclusion that raising short term interest rates would have helped to prevent the meltdown is very questionable imo. you don't want to fix a problem by creating others. see attached charts.

I totally agree about the excessive use of derivatives. this should have been done. but then voices would appear: what about free market?

sounds familiar?

So, you'd like to know what an alternative to QE would be after the fact that the Fed blew it with failing to nip the problem before it blew up? Lol! I'm afraid it's a bit late at this point don't you think?

As I've said before, they've painted themselves into a tight corner at this point with limited options. I'm for letting the Zombie banks fail. It's going to happen regardless if something isn't done about them. But to be specific and answer your question, they (the Fed) should've broken these big Zombies apart and created a better, more sound banking system. But no, the facade plays on.

The only thing that QE is accomplishing is the destruction of the USD. All the other asset classes are just responding accordingly. Finance 101 teaches you the inflation trade. The Fed is blowing it again by not recognizing the inflation they've created. Bernanke has repeatedly said that this is "transitory". But that's been for quite some time now, I'm thinking this has become a bit more permanent vs. transitory. But I'm not surprised as his track record speaks for itself.

I'm interested in learning more as to why you think raising interest rates to curb excessive speculation is questionable. I've never heard anyone say this before and would like to learn the rational behind that idea.

Cheers,
PB

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