Tags: central bank | QE | Japan | quarter

Liquidity Coma — Warning Signs Everywhere, But Who Cares

By    |   Wednesday, 12 Nov 2014 07:59 AM

The world is awash in liquidity. The magic of central banks conjuring up trillions of dollars has spread like a really bad plague and now virtually every central bank is creating money out of thin air or is fighting a losing battle trying to protect their country against this tsunami.

Just as we were wondering what would be the state of affairs after the Federal Reserve stopped its quantitative easing (QE) program, we were greeted with the news of the Bank of Japan going absolutely berserk. I have often written to you about the basket case of an economy Japan has been and was turning worse. But now with their latest move, even some of the fellow central bankers are concerned about the prudence of this latest move.

Announcing an additional $700 billion in fresh QE, the Japanese central bank has absolutely shocked the market. Bank of Japan Governor Haruhiko Kuroda has come to the "rescue" of the collapsing Japanese economy, NOT. After the years of trying that Japan had done, this attempt was QE11 in the last 22 years. And what do they have to show for it?

A big fat NADA.

Not learning from that, the Fed spent more than $4 trillion on its own program. And we have a net gain that can be considered miniscule, if even that. That did not stop Japan from going in further.

So let's tally up. The U.S. has stopped QE (for now) but mind you, they are not draining liquidity from the market. The $4.3 trillion they have created out of thin air does not dry up. The bonds will be renewed on maturity. The European Central Bank (ECB) has announced its own $1.25 trillion in purchase of bonds. The challenge with that is there just are not enough investment-grade bonds to buy and soon the ECB will be buying junk bonds.

Just between the U.S., Europe and Japan we have more than $6.5 trillion of cash floating every single asset you can imagine.

A Jeff Koons white plaster sculpture of a woman carrying three Hermes Birkin bags sold in New York this week for $4 million. Oh dear!!

The central bankers themselves are terrified of what the QE machine has become. Last week when they were on a boondoggle in Paris drinking fine wine and enjoying river cruises, Fed Chair Janet Yellen stated, "Normalization could lead to heightened financial volatility."

In English that means "Oh C^#*."

Yet Wall Street rejoices and proclaims the bull is back and all is exceedingly well. They do not ponder on inconvenient facts such as:
  • Fourth-quarter earnings growth expectations have been lowered from 11.1 percent to 7.6 percent by S&P 500 companies.
  • First-quarter 2015 earnings have been dropped from 11.5 percent to 8.8 percent.
  • The ratio of negative outlooks to positive outlook is 3.9:1.
No one is focused today on the wall of negative data that is rising, which will stall the U.S. growth rates. So any hopes of a global recovery mounting on the backs of a U.S. growth engine will sputter and die by end of the first or second quarter next year.

With Europe, Japan and China banking on the U.S. to keep the pump primed, we will see a shock to the system on a global basis by summer next year.

At that stage we will see the U.S. dollar turn, and when that happens it is anyone's guess what results ensue.

While it is the most hated trade today, I will continue to build the physical gold reserves. There are technical indicators in the market that indicate gold might have bottomed here but then what do I know?

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The world is awash in liquidity. The magic of central banks conjuring up trillions of dollars has spread like a really bad plague and now virtually every central bank is creating money out of thin air or is fighting a losing battle trying to protect their country against this tsunami.
central bank, QE, Japan, quarter
609
2014-59-12
Wednesday, 12 Nov 2014 07:59 AM
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