~i am posting this article as i lost [*hands down* this August] a debate on whether one should keep some cash on hand…if they missed out on the metals…i do believe i was in fact called “stupid”… lolll~jude ;)
After the Federal Reserve and five other central banks on Wednesday announced a joint effort to support the global financial system, stock markets around the world zoomed. The Dow Jones Industrial Average jumped 4.2%, its largest one-day spike since March 2009.
History could offer a clue. A Wall Street Journal analysis of market data provided by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School suggests the central-bank intervention might indeed be a turning point for the markets: U.S. and emerging-market stocks may be poised to outperform, while European stocks could be headed for more trouble. There is enough uncertainty to warrant a healthy dollop of Treasurys and cash in investors’ portfolios as well, for safety.
“There are possible positive catalysts that could paint a constructive picture for equities in 2012,” says Lisa Shalett, chief investment officer at Bank of America Merrill Lynch Global Wealth Management. “But at the same time we’re telling people they need to keep some money in cash until there’s better visibility.”
On Wednesday, the Fed joined with the European Central Bank and the central banks of England, Japan, Canada and Switzerland to make it easier and cheaper for banks to swap foreign currencies for dollars. (Separately, Chinese authorities reduced banks’ reserve requirements in a bid to stimulate lending and boost economic growth.)
As government interventions go, the latest foray isn’t nearly as big as the Fed’s recent bond-buying programs or the Treasury Department’s Troubled Asset Relief Program of 2008. But it did signal that central banks are ready to head off the kind of liquidity crisis that could derail the global financial system.
Coordinated moves like the one on Wednesday are rare but not unprecedented. In 2008, the Fed entered into similar agreements with central banks to arrest a frenzied flight out of just about everything and into dollars. Central banks also moved following the terrorist attacks of Sept. 11, 2001, when damage to New York threatened to wreak havoc on the financial system.
Even as far back as 1931, the global banking community, through the Bank for International Settlements, tried to quell a crisis following the collapse of Vienna’s Credit-Anstalt, then that nation’s largest bank, by providing loans to Austria. The attempt was a case of too little, too late; the crisis soon spread to Germany and elsewhere, worsening the Great Depression.
History suggests the latest intervention could be good for certain asset classes. Over the past 80 years, central banks have joined forces at least seven times during financial crises, albeit in different ways and amid different circumstances from today’s.
On average, U.S. stocks had a real return of 9.1% in the three months following a coordinated intervention, 10.6% after a year and 24.5% after two years, according to the Journal’s analysis of the data provided by Profs. Dimson, Marsh and Staunton. The average annual return for stocks from 1900 to 2010 was 6.3%.
Treasurys, too, produced strong returns. They averaged 7%, 8.5% and 15.2% during the three months, one year and two years following an intervention, respectively, compared with an average annual return of 1.8% from 1900 to 2010.
Some major caveats are in order. The “swap agreements” announced on Wednesday and in 2007-08 don’t compare easily with interventions of the past. Central banks frequently have worked together over the years to prop up currencies—but moves designed to provide liquidity to the global financial system have been less common, notes Michael Bordo, an economics professor at Rutgers University.
“What the Fed did in 2008 was something new,” he says.
The closest parallels may be the international cooperation after the 1998 Russian default, the terrorist strikes of 2001 and the 2008 crisis, says Carmen Reinhart, senior fellow at the Peterson Institute for International Economics. In all those cases, the efforts to provide liquidity prevented a collapse of the financial system in the short run but didn’t solve underlying economic problems.
What’s more, while the average returns have been strong, there has been plenty of variation.
While U.S. stocks were higher three months, one year and two years after the 2008 intervention, investors would have lost 15% in the year following the 2001 intervention and 3.2% after two years.
Still, there are lessons to be gleaned from the past.
First, the closer a market is to the epicenter of a crisis, the less likely it is to post positive returns. European stocks, for example, outpaced U.S. stocks by more than 20 percentage points during the year following the October 2008 intervention.
Likewise, European stocks fell just 6.2% in the year following the 2001 terrorist attacks, compared with a 15% decline for U.S. stocks.
By contrast, U.S. stocks outpaced European shares by nearly 19 percentage points following the attempts to shore up the global financial system after Russia’s default in 1998.
Another important lesson: Interventions don’t always follow a neat pattern for investors. Following the collapse of Credit-Anstalt in 1931, for example, U.S. stock investors lost 51.5% during the next year.
With that in mind, here’s how investors should approach their stock, bond and cash holdings.
U.S. investors often are encouraged to invest more money abroad. They might want to tread carefully now.
The Standard & Poor’s 500-stock index has lost just 1% this year, compared with a 13.5% drop for Europe’s Stoxx 600 index. Meanwhile, the companies in the S&P 500 with the least international exposure have outperformed those with the most exposure by 7.1 percentage points, according to BofA Merrill Lynch.
The U.S. might keep outperforming, says Sam Katzman, chief investment officer at Constellation Wealth Advisors in New York. “If anyone can shelter themselves from what’s going on internationally, it’s the U.S.,” he says. “Money that might have been flowing to Europe might be flowing here.”
The U.S. economy has held up comparatively well thus far. On Friday, the U.S. Labor Department reported the unemployment rate for November fell by 0.4 percentage point from October to 8.6%, the lowest in nearly three years.
Yet with the risks still high, investors should focus their stock purchases on areas that provide relative safety, some strategists say. That means dividend-paying stocks, which have beaten non-dividend-paying stocks by 7.8 percentage points this year.
Growth companies whose earnings are rising steadily might be worth a look as well. “We see value in technology stocks,” says Emily Sanders, chairman and CEO of Sanders Financial Management in Norcross, Ga. “But we’re not jumping in with both feet for clients.”
European stocks might be tempting given this year’s slump. But the economic outlook remains cloudy. The euro zone’s purchasing-managers index, a gauge of manufacturing activity, fell in November to a level consistent with a 1% quarterly drop in gross domestic product, according to research firm Capital Economics.
Emerging markets are another story. Although they have been punished when they have been at the center of market crises, they have performed much better during recent crises.
In the year after the 1997 devaluation of the Thai baht, for example, emerging-market stocks lost almost a quarter of their value. But a decade later, in the year after the 2008 global intervention, they returned 89%.
Many emerging markets, especially those in Asia, may be more insulated from the European crisis than investors think, says Brad Durham, managing director of EPFR Global.
“We believe emerging markets have bottomed,” says Ms. Shalett of BofA Merrill Lynch. She recommends investors target emerging markets stocks in Asia and Latin America, while avoiding markets more exposed to the European crisis, such as those in Hungary, Poland and the Czech Republic.
Cash and Bonds
Even though the central bank intervention has eased short-term concerns, the European common currency’s long-term picture remains cloudy, says Gary Richardson, an economics professor at the University of California, Irvine.
“Central banks around the world don’t have many arrows left in the quiver,” he says. “It looks like they hit the bull’s-eye for now, but what happens if that optimism fades?”
Aaron Schindler, a financial planner at Wealth Advisory Group in New York, recommends keeping as much as 30% of your portfolio in cash or a safe short-term bond fund, such as Vanguard Short-Term Bond Index.
Keeping some dry powder also gives you room to buy once the economic outlook becomes clearer, says Ms. Shalett.
For the bond segment of your portfolio, history shows that U.S. Treasurys have tended to pay off nicely following a central-bank intervention, no matter how stocks performed.
In the two years after September 1936, for example, when the country was in the depths of the Depression, U.S. stocks fell 16.6% in real terms, while Treasury bonds rose 5.6%.
The biggest potential for gains in fixed income could be in bonds of emerging-market countries, says Mr. Durham. The iShares JPMorgan USD Emerging Markets BondETF dropped 1.3% in November, but in the last week it has gained nearly 2%, and is up 5.7% this year. Mr. Durham says investor flows into emerging-market funds, which his firm tracks, suggest that trend could continue.
“[This year's performance] is a sign that they’re seen as a safe haven from what’s happening in Europe and other developed markets,” he says.
Henry Ford said, “It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
We are beginning to understand, and Occupy Wall Street looks like the beginning of the revolution.
We are beginning to understand that our money is created, not by the government, but by banks. Many authorities have confirmed this, including the Federal Reserve itself.
The only money the government creates today are coins, which compose less than one ten-thousandth of the money supply. Federal Reserve Notes, or dollar bills, are issued by Federal Reserve Banks, all twelve of which are owned by the private banks in their district. Most of our money comes into circulation as bank loans, and it comes with an interest charge attached.
According to Margrit Kennedy, a German researcher who has studied this issue extensively, interest now composes40% of the cost of everything we buy. We don’t see it on the sales slips, but interest is exacted at every stage of production. Suppliers need to take out loans to pay for labor and materials, before they have a product to sell.
For government projects, Kennedy found that theaverage cost of interest is 50%. If the government owned the banks, it could keep the interest and get these projects at half price. That means governments—state and federal—could double the number of projects they could afford, without costing the taxpayers a single penny more than we are paying now.
This opens up exciting possibilities. Federal and state governments could fund all sorts of things we think we can’t afford now, simply by owning their own banks. They could fund something Franklin D. Roosevelt and Martin Luther King dreamt of—an Economic Bill of Rights.
COMMENT: Is American finally waking up? EVERYTHING this kid said is correct. EVERY GODD@MN WORD. Yet Most Americans have been asleep for too long and allowed the systematic destruction of their country to continue – while they watched Monday Night Football, or American Idol. The time is up. The complete and utter destruction of our Nation is at hand. And the politicians and bankers conspired in backrooms to make it happen. The question is now, what are WE going to do about it?
“With all the mess going on at the moment, I thought it was worth while stepping back a little and trying to look at the bigger picture.” So begins Andy Lees’ latest must read letter to clients whch explains succinctly virtually the entire story of where we were, how we got to where are now, how the current trajectory is unsustainable, why due to decades of capital misallocation anything that the Fed does now is essentially irrelevant, why our untenable debt pile does nothing but perpetuate an unsustainable ponzi scheme which will result in an unseen explosion in the true cost of capital: gold, and why the bond market will eventually, and inevitably, force an epic repricing in the cost of non-gold capital absent the arrival of the deux ex machina of real, actionable innovation that the Fed, and all global central planners, keep hoping for. Because the longer we keep plugging away with that worthless substitute, financial innovation, which is anything but, the greater the final collapse. Andy’s conclusion: “Until the debt is cleared and capital starts to be properly allocated, economic growth per unit of additional debt will continue to sour. Until we get some real breakthrough technology, requiring large amounts of capital to both innovate and then roll out, we have no chance of supporting the economy.” Too bad than that this absolutely spot on observation reflect precisely the opposite of what the Fed is pursuing.
Why are we here: simple – years of central planning resulting in the greatest experiment in capital misallocation in history.
We are in this mess because of excessive leverage and excessive consumption, financed by excessively cheap real capital – (not just Bernanke & Greenspan but further back to the end of the gold standard, and in fact even before that as it was this misallocation of capital that forced us off the gold standard in the first place). If capital had been allocated productively, then by definition debt would fall as a percentage of GDP. Total debt may rise, but efficient allocation of capital would always mean the economy would grow faster than the debt as it means you are making a positive rather than negative real return on that capital.
Whichever way you look at it, capital has been massively misallocated for years.
Corporate profits… or massive debt-funded ponzi scheme?
How can that be when corporates report massive profits? The profits are based on paying their workers a salary that meant they could only buy the goods they made by borrowing; in other words, a massive unsustainable ponzi scheme that could only ever end up with default. Without the household debt accumulation, there would be no market to sell their products to, and without paying the workers sufficient, the debt would always have to default.
This required a massive increase in financial innovation to keep the illusion of corporate profitability alive – (household debt was a way of delaying putting the true costs through the corporate P&L account and recognising the costs). Financial sector innovation is itself another form of capital misallocation, taxing people away from real innovation – (to keep the illusion alive, an ever greater percentage of economic output had to be allocated to this illusion machine) – helping add to the resource constraint we are in today.
If financial innovation, which we have so much of is not needed, what is the right kind? And why is it so sorely missing.
(AB note: The World Global Settlement Funds, referenced on this page, should not be confused with the SG World Trust. The World Global Settlement Funds have in excess of $47 trillion to disburse to 140 nations across the globe. This due and lawful disbursement has been blocked by the Washington DC private corporationfor more than three decades. The SG World Trust is much bigger, and older, than The World Global Settlement Funds.)
On the evening of Thursday 28th July 2011, Barack Obama, the President of the United States, informed the World Court at The Hague that as long as he was President, he would not sign off on the World Global Settlement Funds. More background here (28.07.11).
Obama’s refusal to lawfully execute his responsibilities in this specific followed upon the wide circulation of a letter dated 7th July 2011, from Lindell Bonney to Dana Wilcox (full text here). The financial data set out in this letter showed that the US income taxes expected to be paid to the US Treasury from just four of the World Global Settlement Fund-related recipient-paymasters would amount to a sum in excess of $11 trillion. This would be sufficient to pay off most of the US national deficit and would pump-prime the US Dollar Refunding Program.
This executive refusal to sign further delayed the due and lawful disbursement of The World Global Settlement Funds ($47 trillion), the implementation of the US Dollar Refunding Project ($10 trillion), the long-agreed global debt jubilee (universal debt forgiveness), and the introduction of the new precious metals-backed international currencies.
The text linked above is a letter dated the 17th June 2011 from Pasadena Attorney Al Clifton Hodges to the Chinese government through the Chinese Ambassador to the United States,
The direct Chinese involvement in the internal finances of the US dates from 2009 when a $47 trillion Lien against the US Treasury and the US Federal Reserve Board was taken out by élite monetary interests in the UK and China. More here(18.06.11).—>
Stocks plunge as worries about global growth cause traders to dump stocks and seek safety. Gold briefly tops $1,680 but falls back. Treasury yields fall as the dollar rises.
Stocks plunged, with the Dow Jones Industrial Average ($INDU -4.31%) tumbling 513 points, their worst one-day loss since December 2008 and ninth-worst point loss, as investors worried that the U.S. economy may be slipping back into a recession. The overall market carnage wiped out all of the 2011 gains for the major averages.
The market rout was prompted in part by concerns that the Federal Reserve won’t try to boost the economy again and the prospects of little — if any — help on the way from the federal government. A huge concern was what Friday’s big jobs report will say. In addition, there were deep fears about the health of the European financial system; stocks on the continent fell sharply. Stocks in Brazil were down nearly 6%.
With today’s losses, the market is now in a correction, with the Dow,Standard & Poor’s 500 Index ($INX -4.78%) and the Nasdaq Composite Index ($COMPX -5.08%) all down more than 11% from the closing highs for 2011, reached on April 29. Nearly all of the declines for the indexes have come since July 21; the Dow’s loss in that time is about 1,340 points.
Gold briefly surged above $1,680 an ounce for the first time and then sold off, and crude oil dropped below $88 a barrel for the first time since mid-February.
The Dow closed down 513 points, or 4.3%, to 11,384. The S&P 500 was off 60 points, or 4.8%, to 1,200, its lowest level since Nov. 30, 2010. The Nasdaq was off 137 points, or 5.1%, to 2,556, its lowest level since Dec. 1, 2010. TheNasdaq 100 Index ($NDX -4.57%) was down 106 points, or 4.6%, to 2,207.
A picture from the gold vault of the Federal Reserve Bank of New York (Photo credit: Wikipedia)
Federal Reserve Directors: A Study of Corporate and Banking Influence
Chart 1 reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. The two principal Rothschild representatives in New York, J. P. Morgan Co., and Kuhn,Loeb & Co. were the firms which set up the Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal Advisory Council in 1914. In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.
The majority of today’s daily is devoted to Ranting Andy in the LeMetropole Café section. Don’t miss it. I have a few rants of my own, below.
Yesterday, Cactus Jack sent me an email. It was titled“Never sell America Short. God Bless America.” He sent me the link to a parade, recently held in Grand Rapids, MI where the town’s people came out in number singing and dancing in the streets to the song “American Pie.” The outing was a rebuttal to an article that implied the city of Grand Rapids was dying. Here is the link, if you are interested:
It was all very uplifting and amusing, but very, very naive.
Jack is a heck of a guy – he is a real optimist and a real American. He has lived his entire life, all 75 years of it, in affluence. He grew up with money, he made big money and his friends and family all live the high life. I can’t really fault him for seeing the bright side when that is all he has ever known.
I really want Jack to be right. I too love this great country. But a small group of very greedy and powerful men and women who populate Wall Street and Washington DC have set us all up for one massive failure. It is unfair to lay all of the blame on the bankers, brokers and politicians for without the indirect help of the masses, this could never have happened. The past several generations of Americans have allowed the American Dream to fade. I fear we have become a nation of under-educated, over-fed, lazy uninvolved people. Not everyone, but enough of the population to allow the current state of affairs to have happened.
Too many Americans refuse to get off their fat behinds and turn off Oprah or Judge Judy or Dancing With The Stars. Too many Americans honestly believe we can change things – all we have to do is vote for Obama. Or all we have to do is not vote for Obama. I’ve got news for you – Democrats or Republicans, Liberals or Conservatives, none of them have the answers anymore. All they care about is to spend enough of our tax dollars to stay in office, or get elected. We will get what we deserve. Those of us who do care, and even write about it, are greatly outnumbered by the masses that are addicted to their next welfare check, their super-sized McDonalds and their next trip to Wal-Mart.
June 18 2011: Pensions borrowed (plundered) from heavily, nobody wants QE3, debt used to wage war, Fed Chair Bernanke acts like an elitist, a short term debt limit to deal with, a Greek default could bring the Euro down, a disease of debt, IMF pessimistic.
As far as we can discern the US Treasury thus far has spent and borrowed about $100 billion from the federal pension accounts. Unless there is a vote on the cash debt extension prior to August 2nd, government will probably have borrowed some $250 billion to $300 billion. The Treasury is paying virtually no interest on this debt. Three-month Treasury bills are currently yielding zero percent. Our question is how will the funds be generated to fulfill the Treasury’s obligation to the pension fund? What happens if on August 2nd if legislation is not passed? Does this go on forever? We will keep you apprised on new developments.
The current situation regarding the state of recovery in the US has turned from precarious to dismal and as we predicted a year ago May we will have to be treated to QE3 something no one really wants, but as we said before it is inevitable. The Fed and their controllers, the member bank owners of the Fed, know the present approach doesn’t work and it is only a matter of time, as a result of their policies, when more stimulus will be needed, which in turn leads to more inflation.