mercoledì 8 gennaio 2014

The Show Must Go On....

....The S&P 500 closed out the year (2013) with a 29.60% gain and ended at a new all-time high.
 Only four times since its inception in 1957 has index had higher annual gains:
38.06% in 1958,
31.55% in 1975,
34.11% in 1995,
and 31.01% in 1997.
According to the U.S. Treasury, the yield on the 10-year note closed at 3.04, a new interim high.

The Coming Epic Collapse of the Bond Bubble
by Phoenix Capital Research

In the 1960s every new $1 in debt bought nearly $1 in GDP growth. 
In the 70s it began to fall as the debt climbed. 
By the time we hit the ‘80s and ‘90s, each new $1 in debt bought only $0.30-$0.50 in GDP growth. 
And today, each new $1 in debt buys only $0.10 in GDP growth at best.
Put another way, the growth of the last three decades, 
but especially of the last 5-10 years, 
has been driven by a greater and greater amount of debt.
 This is why the Fed has been so concerned about interest rates.

You can see this in the chart below.............................
It shows the total credit market outstanding divided by GDP.
As you can see starting in the early ‘80s, the amount of debt (credit) in the system has soared.
We’ve only experienced one brief period of deleveraging, which came during the 2007-2009 era.

Bernanke's Fed couldn’t stomach this kind of deleveraging.
The reason is simple: those who have accumulated great wealth as a result of this system are highly incentivized to keep it going.
The Fed doesn’t talk to you or me about these things.
It calls Goldman Sachs or JP Morgan.
And most of the Wall Street wealth of the last 30 years has been the result of leverage (credit growth).

....the Fed’s policies, no matter what rhetoric the Fed uses, are more in favor of the stock market than the real economy.
That is to say, they are more in favor of those firms that can easily access the Fed’s near zero interest rate lending windows than those firms that are most likely to generate jobs: smaller firms and start-ups.
This is why job growth remains anemic while the stock market has rallied to new all-time highs.
This is why QE is so dangerous, because it increases concentration of wealth and eviscerates the middle class.
This system works as long as debt continues to stay cheap. 
However, in the last 12 months the Fed has definitively crossed the point of no return with its policies. 
It is not just a matter of timing before this debt bubble bursts.........................

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