The Public Is Being Set Up For The Scalping Of A Lifetime

Over the last three days, we have reported that some of the most important investment voices in the world are more than a little scared about the ravenous appetite for risk playing out in the market, and the fact that they have been ignored is beyond unnerving. Central banks are driving all investment decisions, and what this implies is that they are in this trade so deeply that there is no obvious or practical exit.  Richard Brewlow via Zerohedge (link)

Zerohedge posted an essay by Bloomberg’s Richard Breslow that needs some additional commentary.  We already know that western Central Banks have been buying nearly ALL new Government bond issuance for the last 5 years.  We know that Japan’s CB admits to buying equities.  We know that the Fed sticks huge bids in the market for the S&P 500 eminis in order to trigger massive hedge fund HFT algo buy programs of the big S&P 500 contract.   I suspect that the Fed is also buying stocks, which is one of the reasons it is spending million on lobbying to prevent Congress from passing a law forcing an audit of the Fed.

It’s no secret the Fed is thus pushing up the S&P 500 to new record highs almost on a weekly basis. It has prevented the stock market from undergoing a meaningful price correction now for nearly 4 years. Concomitantly, the Fed/Government is now continuously preventing the price of gold from moving higher, although it seems to have lost all ability to push it much lower than $1150.

Meanwhile, the underlying fundamentals of the economy are deteriorating at rate that now rivals the rate at which it was deteriorating in 2008.  I just got an email from someone today who told me that financial analyst Dave Skarica has stated that all midwestern regional banks who gave out loans to U.S. shale producers do not have any loan loss reserves for when these loans go bad.  He also said that NONE of these banks have taken write downs yet on the loans that are now trading between 50 and 70 cents on the dollar in the market.  This means that $100 million loan on a bank balance sheet is worth only $50-70 million based on real market market data, yet the bank is carrying this loan at $100 million.

This situation is magnified at the at the Too Big To Fail Bank level.  Every single TBTF bank has released most of its loan loss reserves back into its income statement over the last 4 years in order to generate GAAP accounting “net income” beats of estimates.  But this is non-cash, phony money.  How about if we get to see JP Morgan’s inside books and see where it has marked unsold, unsyndicated bank loan paper to near-insolvent shale companies. I’d be my dog’s life they have that debt marked at 100 cents on the dollar even thought it’s likely worth, at most 50 cents.

To read the rest of this, go here:   Investment Research Dynamics