Wednesday, June 22, 2016

Helicopter Money Is Here!

-" There is no other agency of government which can overrule actions that we take."
- Alan Greenspan

When Milton Friedman tagged the line, he was being flippant. Things have gotten so bad about "manna" from helicopters that maybe, you thought for a second that I was going to reveal a website giving away cash?
The Fed had its June meeting, but the bond market called the minutes even before they were written. Dear reader, two markets are moving at light speed, and usually, they move at a snail's pace. This insight will give you a feel at what I'm seeing.
Currency Market
is 44 times larger than the stock market. In fact, it is the world's largest exchange. One nation and one confederation are disrupting the basket of currencies that world trade responds and trades off.
The yen has gyrated 20% in range since 2014. The euro is in a state of flux. Its range has seen moves of 25%. This is a direct result of "free" money from central banks associated with each entity. Japan's central bank is doing monetary finance. No one will buy their bonds except the BOJ and to the tune of $80 trillion yen per year. The Japanese government uses deficit spending at $35 trillion yen a year. The plan is to eliminate debt by buying all the debt. Then, they will tell the world that they are debt free. Yay, helicopter money!
The European Central Bank is enacting the same plan, but closer to QE. They will buy corporate debt and this action is driving rates down for member nations. For example, take Germany. In 2014, the ten year rate was 1.44% and today, 0.01%. This is a 98% drop in two years! In fact, in daily action the German note actually went negative.
Taxing Money
Switzerland leads the charge against cash. For example, you put $100K in a Swiss ten year note and they bill you $4500 upon the due date. By the way, if rates were to rise during the period that note would also crash in total value. Who you gonna call? Ghostbusters? Idiots!
Even though currencies have declined with mass printing, banks have tighten their lending standards because of their exposure to the falling price of oil. A recent study found that 80.2% of banks are cutting their lending to the oil and gas industry. Before they close the vault, they have added more capital to cover the wave of defaults and bankruptcies. Bank of America has added another 15% for the rainy day. By the way, the latest bankruptcy count(83) is higher than the combined points scored by James and Irving(82) in game five of the NBA championship.
Need A Fifth
The coach, the ECB, has four players in Japan, Denmark, Sweden and Switzerland. They need one more to get a starting five. At present, the team has assembled $13 plus trillion in government bonds that are negative. In fact, in the last four months negative issues have jumped 67%. In addition, as stated, bonds in Germany and the UK are so low that at various times the issues have turned negative.
Why the Bond Market Knew...
The week before the Fed meeting, the 10-Year T-Bill was 1.70% and last week, just 1.39%.Dear reader, that yield won't even match inflation for 2016 and this goes to 2026? Get real! We have been living with negative yields since 2008, but no one speaks for the citizens when talking about inflation. Food and shelter are off the charts and don't mention car insurance or the other lie, Obama Care.
Three US powerhouses are grabbing the dollars as they fall from the sky. Johnson and Johnson(JNJ), General Electric(GE) and Philip Morris(PM) all have bonds trading in negative territory. Companies will be grabbing with both hands except a few sane souls like myself. I'm not alone.
Not So Fast, Kimosabe!
In Japan, citizens are pulling their money out of banks. I predict this action will grow all over the world, maybe even develop a run on banks. Anyway, they are buying safes to store their yen. I think mattresses got a bad rap from all the mafia movies.
In Germany, the insurer giant, Munich Re recently pulled their millions from the ECB. This company insures insurance companies and I guess they are looking for insurance? Commerzbank, a German banking giant, also pulled their millions from the ECB.
World's Collide
A split will emerge within the world. On one side will be the fiat people and on the other, the awakening to real value like in precious metals. I will stop to pick up a dollar lying on the street, but I ain't looking up to the skies for some more. Real wealth takes work. You have to invest your time and energy to create value. You can't create it out of thin air. When something has real value, it will retain that value and not be subject to the wind blowing paper in the air at the caprice of some bureaucrat, a desk jockey, thinking he is a financial engineer. End the Fed!