When QE goes Nuclear

 On June 19th, Federal Reserve chairman Ben Bernake hinted that the Fed might eventually print less than $85 billion a month.

I print.  Therefore I am.

2 picoseconds later the Dow Jones Industrial Average began a nose-dive of 204 points. 

It then cratered 354 points June 20th, then fell another 250 points overnight.  

By June 21st, less than 10 market hours from Ben's 2:15 comment, the Dow had lost 808 points.  5% of it's total value.

 Then a curious thing happened.

Fed governors and mouthpieces began speech after speech counseling how "the market" had "misunderstood" Ben.  He wasn't really considering not printing money for Wall Street to play with.  Just one big misunderstanding, that's all.  Party on, boys.

And the stock rally began...

Now stocks are at all-time highs, and all is well. 

Every stock market "correction" since 2009 looks like the one pictured above.  The market falls, and the Fed responds with more money printing Quantitative Easing.  $4 Trillion of it since March of 2009, currently clipping along at $85 billion per month with no end in sight. 

Not once in five years has the "free market" stopped declining on it's own.  The Fed has intervened every...single...time. 

Ben torpedoed the Dow by 800 points in 3 days by merely hinting that he might print a little less than $85 billion  a month.  He had to "un-hint" to get the market back up.  Why'd he do that?

Because to Ben and the Federal Reserve:
 
Stock Market = Economy.   

In the chart below,  the blue line is electronic money the Federal Reserve has created since 2009 and the red line is the stock market.  That grey area is where the recession ended.  At least for Wall Street and Company.

Below we see the only stock market dips the last 5 years.  The blue areas are the Fed's 3 previous QE programs 1, 2 and twist.  Blue = Printer on.  Yellow = Printer off.  See the difference?

When stocks drop, in swoops the Fed to print mo' money and  save the day...

 

The problem is, every single person on Wall Street knows this.  

 

They all know stock prices are higher than they should be because of the Fed, and they know without the Fed stocks will be lower. 

 

A lot lower.  Nobody wants to stick around and find out what the stock market will look like without our Central Bank printing a 57 mile-high stack of $100's for it every month.  They run screaming for the exits at the merest hint of no free money.  June 19th being the latest case in point.  Since then, stocks have been on an unprecedented rally.  Right along with the Fed's balance sheet.

Simpatico!

 

My cocktail napkin math shows every $250 billion the Fed gives to Wall Street is good for about 100 points on the SP-500.

 

 I know what you're thinking.  The Fed doesn't just print money and give it to Wall Street.  You're right.  Only the Bank of Japan admits

printing money and buying stocks with it.

 The Fed hits "Ctrl P" and presto, they've got $85 billion to buy some bonds with this month.  Who are they buying bonds from?  Giant Too-Big-To-Fail Wall Street Banks like JP Morgan or Bank of America. Then they pour it into stocks, derivatives, and anything else they choose.  

 

It's like when Scarface tells Frank he's not gonna kill him...and he  doesn't...he tells Manny to kill him.  Sorry Frank. 

 

 The Fed has turned the stock market into a twisted reality version of the movie Stripes, with Wall Street as Francis and Ben Bernake as the Sarge...

Wall Street

"Any Central Bank even THINKS about not giving me free money, and I'll kill 'em."

Ben

"I'm printing forever".

If the stock market falls just a little... 

Guess who's coming to save the day...

Here's the Fed's own video to enlighten the masses on how they create money.  At last check a whopping 7,698 Americans were interested in where those paper things in their wallets come from. 

As opposed to 64,448,537 watching the crazy, nasty-ass honey badger.  He don't give a shit.

If you watched the Fed video, congratulations!  Your lucky watcher 7,699!  You see the scholarly lecture on how their free money gets lent out to Main Street, pictures of dudes in hard hats, and assorted feel-good stuff that might've been how things worked in 1958.  The Fed chides us for saying  "printing money" like they did before computers when in fact they are "creating electronic funds".  Good point, Fed.  I'm chiding you back for saying your funds go to Main Street after the Giant Too-Big-To-Fail banks get done with it.

If it did, then everyone in America would be at all-time financial highs just like the stock market. Towering in prosperity over previous generations like Godzilla over Tokyo.

This is not the case.  The Fed's QE program is making 3 types of citizens wealthy:

1. Those who own lots of stocks.
 

2. Those related to the big banks and industries who get access to free money and/or were bailed out.  No recession for them.

3. Those with jobs related to the government who get free money. The National Debt has doubled in 5 years.  No recession here. 

  Here's what's happening:

  The Stock Owner

The benefits of a rigged market are dramatically disproportionate for the top 20% of America. 

80% of Americans own a whopping...7% of financial assets. 

 Notice how the dot-com stock bubble, the housing stock bubble, and now the QE stock bubble have affected the 1%ers versus everyone else...

Let's see how Wall Street money managers feel about Ben rigging the stock market...

"Bernake is outstanding!" gushes Don Hays of Hays advisory group.  "We think he is one of the best Fed chairmen that has ever been!" Miller Tabak's Andrew Wilkinson breathlessly opined "We see no reason why he might not INCREASE the pace of bond purchases before year end!" 

 Man-Crushing on Bernake.  Awkward.



 1%ers and their money managers love, love, love QE.  And Ben. 

Booya!

The Bailout Recipient 

 

See if you can spot who's  feeling the QE...

 

 Banks to the left,  everyone else to the right..

 The nation's 5 biggest banks are on track to pay out $127 billion in total compensation, including at least $23 billion in bonuses, this year. That's up from the $114 billion the banks shelled out to their employees in 2009. It translates to $149,472 per full-time employee for 2013, and is roughly triple the pay of the average American.

 

The following list shows the largest banks in the U.S., as of Dec. 31, 2012. The assets are listed in thousands of dollars.

 

Rank	Institution Name	Location	Total Assets
1	JPMORGAN CHASE & CO.	NEW YORK, NY	$2,359,141,000
2	BANK OF AMERICA CORPORATION	CHARLOTTE, NC	$2,212,004,452
3	CITIGROUP INC.	NEW YORK, NY	$1,864,660,000
4	WELLS FARGO & COMPANY	SAN FRANCISCO, CA	$1,422,968,000
5	GOLDMAN SACHS GROUP, INC.	NEW YORK, NY	$938,770,000

Gee...all "Too Big To Fail" bailout recipients.  Shocking.

The $4 trillion dollars the Fed has printed since 2009 is enough money to give $11,500 cash to every man, woman and child in America.  The Fed's textbook says it "trickles down" to Main street through loans and investments. 

"Too Big to Fail" has killed that tenuous connection.  The big banks make a lot more cash laundering drug money, rigging LIBOR, rigging electricity prices, rigging interest rates, rigging bond auctions, or, well, just Google "bank rigging"and see. 

Loaning to Main Street is out, screwing the entire planet is in.  And the TBTF banks are now 24% bigger than they were in 2009.


If you are wondering why Ben doesn't just bail everyone out and
drop money from a helicopter, you're not alone.  Evidently we would "spend" free money on frivolous crap in some economy other than our own, thus the money wouldn't help.

 By comparison only one bailout recipient, Daryl Woods, has been caught "misallocating resources" on a private condo in Florida. 

He's since been kicked out of the Bankster club for being an idiot. 

Not for the condo of course, but for not properly laundering his TARP funds first.  And getting caught.

You can imagine what would happen with thousands of Daryl's out there receiving bailouts...

Unless... you are Citigroup.  Or Bank of America.  Or Goldman Sachs.  Or Chrysler.  Or General Motors.  Or Fannie Mae.  Or Freddie Mac.  Or Wells Fargo.  Or AIG. Or GMAC. Or any of the
936 Bailout Recipients.

Why didn't the world end when they got free money?

Evidently the world does not end if the right people get bailouts and free money.  Only if the wrong people get it. 

How do you know who the right people are?

This is how you know who the right people are.

"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."
-J. Paul Getty

If only that were still true Mr. Getty. 

"If you owe the bank $100 that's your problem.  If you owe the bank $100 billion, that's everyone's problem but the bank's."

-Rob

Bailout recipients and Too Big To Fail Companies love, love, love QE.  Keep up the good work, Ben!

Government  Connected

Our national debt is now 102% of our Gross Domestic Product.  Borrowing is considered "Producing" these days.

Government related incomes have done just fine...

Everyone else...not so much.

I'd say this government-connected group is more in the "what are you talking about?" camp.  They never stopped getting paychecks until they were "furloughed" during the government shutdown.  They got their paycheck for not working during the shutdown as soon as they returned (this is called "paid vacation" on Main Street).   No problem.

The Very Big Problem:

The Fed says it won't stop QE until unemployment is "lower", and they don't need to stop it because there's little inflation.

There's little inflation because

A:  The Fed has stripped out nearly everything that costs money (like food and fuel) to calculate inflation.

B:  The money isn't going to Main Street America.  It's going to Wall Street.  This is also why QE is not effecting unemployment like it used to.  The Wall Street /Main Street disconnect.  Oh, and there is inflation, just not in wages.

 

 The smartest thing our privately held central bank did besides naming itself "Federal" was naming dollar devaluation "Inflation".  The cost of everything isn't rising...the purchasing power of the dollar is falling.  To compensate you must make a proportionately higher amount of money to maintain your living standard.  

Purchasing Power of the Dollar

Prices for all Consumers

 So in a world where money is created electronically,  you want to be at the front of the "free money" line to succeed.  It's a simple exercise to see who's close...

Wall Street

"What is wrong little main street girlie-men?  Don't you get free money too?"

and who's not...   

Main Street

"Ctrl P!...(grunt)...Ctrl P!...(gasp)!"

QE is simply not working for who the Fed publicly says they're doing it for, Main Street America.  It's working AWESOME for Wall Street. 

The red line below is the number of working age people with jobs in America.  The blue line is the $4 trillion Fed balance sheet at all time highs...


Jobs are where they were in the 1970's...

The Fed's balance sheet and the stock market are both at all time highs.



But that balance sheet isn't helping people get jobs. 

The job ratio is same as it was in 1974. 

 

The '74 Charger is cool...'74 jobs is not cool. 

 

The one chart on Main Street that does correlate with the Fed's balance sheet is food prices.  Ben Bernake is the man who killed the McDonald's Dollar Menu.








The Fed says "imagine how bad it would be without us".  Well, it looks like for every $2 trillion they print, America gets $1.5 trillion in GDP.   Looks can be deceiving...

 Corporate Profits are up by that exact $1.5 Trillion!  Booya!  That should trickle right down to Main Street America!  Well done Ben!

Only...it doesn't trickle down.  Look at employee compensation and household income as a percentage of GDP.  The Fed lags the data by a year, but you can see how QE was doing for the first 4 years.

Now look at Corporate Profits compared to GDP:

And for the grand finale:  Corporate Profits, before and after taxes:

Your eyes are not deceiving you...that's about a 2.7% tax rate. 
The SP-500 is the top 500 Corporations based in America.  Over 50% of their profits are derived overseas, and stay there.  This is why the Fed's fixation on the stock market, and Wall Street, is killing Main Street America.  Corporate profits don't trickle-down.  They go to CEO's and shareholders.   The Fed has to ensure the money goes to the domestic economy to help Main Street.

Alas, I don't see that happening.  In fact, Ben Bernake is retiring due to tendinitis in his Ctrl-P finger.  The man who has printed the most money and given it to the fewest people in history is out.  I nicknamed Ben "B-52" for his money-dropping prowess.  Janet Yellen is the new head of the Federal Reserve. 

I solemnly swear to print money, a whole lot of money, and nothing but money, so help me Wall St. God.

Janet's monetary policy compared to Ben's look like this:

B-52 Ben

Thermonuclear Janet

Janet's thinks $ 4 Trillion worth of QE isn't helping unemployment because it's NOT ENOUGH. 

It's not working because 90% of the money gets swallowed by the TBTF banks, who caused the crisis in the first place.  Wall Street on Parade summarizes how QE works for these bailed-out banks:

"On March 31, 2009, the FDIC reported that there were 8,246 FDIC insured institutions with total domestic deposits of $7.5 trillion. Four institutions, Bank of America, JPMorgan Chase, Wells Fargo & Co. and Citigroup, four institutions out of 8,246, controlled 35 percent of all the insured domestic deposits in 2009.

By June 30, 2013, according to FDIC data, the 8,246 banks and savings institutions had shrunk to 6,940 institutions. Bank of America, JPMorgan Chase, Wells Fargo & Co. and Citigroup, now control a combined $3.511 trillion in domestic deposits, a stunning 58.8 percent of all 6,940 U.S. banks’ domestic deposits of $5.966 trillion. The market share of these four mega banks has increased by 24 percent in just 4 years.

And each of these mega banks (that together hold the bulk of the insured life savings of Americans) owns an investment bank and brokerage firm making daily speculative, highly leveraged bets on derivatives and the stock market and the futures market."

"Insanity: doing the same thing over and over again and expecting different results." - Albert Einstein
Read more at http://www.brainyquote.com/search_results.html#c7y25imgxYL51WmG.99

"Insanity: doing the same thing over and over again and expecting different results." - Albert Einstein
Read more at http://www.brainyquote.com/search_results.html#c7y25imgxYL51WmG.99

Insanity: "Doing the same thing over and over and expecting different results." 
 - Albert Einstein.

Fed QE policy:  "Doing MORE of the same thing over and over and expecting different results" 
 - Rob

 So get ready for this Main Street:


Wall Street TBTF Banks
" I could use a ball washer" 
 

Main Street
"I hope they've got WiFi at the Welfare office so I can watch that nasty-ass honey badger again.  He don't give a shit."

Stock market players, party on and watch the Fed.  Only the Fed.  If anyone hints that the printing press will slow down here's my advice:

Main Street, you need to find a way to tap that printing press.  Fast.  Or write your congressman to end TBTF and QE.  Really, though, you'd better just make a lot more money.  Like the honey badger, your congressman don't give a shit. 

After all, Americans are the wealthiest they've ever been.  Really.