Submitted by Deepcaster:
A Key Market Driver going forward is Increasing Systemic Risk resulting from over-levered Mega-Banks. The arrogant Mega Bank/s receive massive Bailouts via Money Printing and Bond Buying and Super-low Interest Rates for Funding. Yet they complain about over-regulation. And JPMorgan is laying off 19,000 employees to boot and other Banks are implementing layoffs as well.
Yet according to Dimon, they will have too much capital. How so?
U.S. Accounting rules allow them to net off derivatives assets and liabilities and just report a Net figure.
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“Currently, I see a Storm coming, maybe Bigger than 2008-2010.”
Stanley Druckenmiller, Legendary Hedge Fund Manager, Bloomberg, 03/01/2013
Likely one Major Cause of the coming “Bigger” Storm is revealed in the following exchange.
“Jamie Dimon, the chief executive officer of JPMorgan Chase & Co, said banks are accumulating more capital than they need as regulators push lenders to build equity.
“’I don’t think it’s just JPMorgan,’ Dimon said yesterday at a conference discussing the New York-based company, which disclosed plans to eliminate as many as 19,000 jobs. ’I think all banks will have too much capital in two and a half years. And they’re not going to know what to do with it.’
“Dimon, 56, has said excessive regulation could impede growth as international authorities and the Federal Reserve push banks to guard capital to better withstand another financial crisis. JPMorgan halted buybacks under pressure from regulators last year after uncovering a trading loss at its chief investment office that swelled to more than $6.2 billion.
“The CEO, responding to analysts’ questions, dismissed the argument that clients may switch to banks that have the highest capital ratios. Zurich-based UBS AG is targeting a Basel III common-equity ratio equal to 13 percent of risk-weighted assets.
“’What I hear UBS saying in their presentations is, “If I’m an affluent customer, I’ll feel a lot better about going to UBS knowing that they have a 13 percent capital ratio than another big bank with a 10 percent ratio,”’ said Mike Mayo, an analyst at CLSA Ltd. ‘Do you agree with that or disagree?’
“Dimon countered, ‘So you would go to UBS rather than JPMorgan?’
“’I didn’t say that,’ Mayo responded. ‘I said that was their argument.’
“’That’s why I’m richer than you,’ Dimon said, drawing laughter from the audience.”
Bloomberg, 02/27/2013
A Key Market Driver going forward is Increasing Systemic Risk resulting from over-levered Mega-Banks. The arrogant Mega Bank/s receive massive Bailouts via Money Printing and Bond Buying and Super-low Interest Rates for Funding. Yet they complain about over-regulation. And JPMorgan is laying off 19,000 employees to boot and other Banks are implementing layoffs as well.
Yet according to Dimon, they will have too much capital. How so?
U.S. Accounting rules allow them to net off derivatives assets and liabilities and just report a Net figure.
The clear implication is that the Mega-Banks are much more highly leveraged than they admit and therefore a threat to Financial System Stability just as they were in 2008.
This Risk is but one Key Factor to consider going forward.
There is a Great Advantage to knowing the Key Factors influencing the Macro-Environment Going Forward. (For example, neither of the 2 Most Important Deadlines the U.S. faces this year is Sequestration.) That Knowledge Reveals High Probability Opportunities and Pitfalls that might otherwise be missed. Therefore consider shadowstats’ conclusions which reveal other Key Factors:
“The general outlook for ongoing and deepening economic and systemic-solvency crises is unchanged. Also unchanged is the outlook for a looming, heavy sell-off in the U.S. dollar and for an ensuing inflation crisis.
“Major economic reporting for January 2013 has been suggestive of month-to-month stagnation or contraction, and of year-to-year slowing or contraction, in ongoing business activity.
“Consumer activity continues to be restricted by structural impairments to consumer liquidity.
“Growth in January housing starts turned negative for the month, with annual growth slowing sharply.
“With Ongoing Systemic-Solvency and Economic Crises, QE3 Likely Will Be Expanded. Based on comments in the February 20th release of minutes of the last Federal Open Market Committee (FOMC) meeting, the markets were disrupted by suggestions that the Federal Reserve might reduce its asset purchases in QE3. While some concerns expressed as to QE3’s negative impacts were legitimate, the published comments deliberately ran contrary to the underlying reality of deteriorating economic and systemic problems, and of the negative impact of low interest rates on the economy. Artificially-low interest rates destroy interest income and impair bank lending. The odds of the Fed pulling back on QE3 in the year ahead are close to nil, given the deepening and ongoing economic and systemic-solvency crises.
“More likely, the publication of the market-disruptive comments in the Fed’s minutes was aimed at firming-up the market for the U.S. dollar, and at softening-up the gold market. This is in advance of likely market turmoil in the month(s) ahead from the still-explosive U.S. budget-deficit and long-range sovereign-solvency crises, and from related issues tied to raising the debt-ceiling on U.S. Treasury borrowings.
“The Fed is extremely sensitive to publishing comments that could impact the markets, so any such comments that have major market impact almost have to be viewed as deliberate.
“Nonetheless, in response to the systemic-solvency crisis and panic of September 2008, the Federal Reserve and the federal government committed themselves to saving the domestic financial system at any cost. All the actions taken then and since have pushed the crises into the future somewhat, nothing more. As the crises move now towards renewed climax, Fed reaction most likely will be even greater easing and monetization of Treasury debt, not a withdrawal from QE3. Given the choice between inflation and dollar-debasement, or imminent systemic collapse, the Fed already has selected inflation and dollar-debasement. As to hyperinflation risks, they are too far into the future (next year?) to worry about.”
“January CPI, Real Retail Sales and Earnings, Existing Home Sales, Fed Easing, Gold and U.S. Dollar, no. 505”
John Williams, shadowstats.com, 2/22/2013
Whether one “likes” Shadowstats and Druckenmiller’s Forecasts or not (and the conclusions are disturbing to us), we are compelled to conclude that the Shadowstats and Druckenmiller’s Forecasts are Highly Probable.
And one factor in Shadowstats’ Forecast will be especially significant – Shadowstats (correct thus far) Forecast for Increasing Inflation leading to Hyperinflation (thus the U.S. is already Threshold Hyperinflationary at 9.24% per year – see Note 1 below).
Deepcaster has explained how Inflation in some Sectors and Deflation in others, coupled with Bogus Official Statistics, obscures the Reality of an Increasing net Inflationary Environment (See Deepcasters’ Article, “Gain from Power Elite’s Key Sector Price Inflation,” 1/11/2013 in the Articles Cache at deepcaster.com) leading to Hyperinflation and Economic Stagnation.
So the Key is to Invest and Trade in light of the Causes and Consequences of Impending Hyperstagflation in Key Sectors.
So what are they? And when?
For one, continuing Central Bank QE means ever-increasing liquidity. Over the short to medium term this liquidity pumps up Asset Prices, including Equities prices, but also especially Food and Fuel Price Increases, as we are already seeing.
But at some point, consumers are spending an even greater proportion of their limited income on Food and Fuel which stifles consumer demand and thus stifles economic growth. We already approach that Tipping Point.
One other Factor is Political and Economic Developments. In the U.S. for example, the ongoing dispute about U.S. Sequestration and the Debt Ceiling serves as an increasingly Bearish influence on the Markets.
But perhaps the Deadline with the most potential for disruption is March 27th when the continuing Resolution that funds U.S. Government Discretionary Operations runs out. Either that gets resolved or it’s lights out.
When Sequestration, and Continuing Resolution, and Debt Ceiling problems, are resolved (however temporarily or inadequately – note we did not say “solved”) and if there are no more major negative exogenous events, then The Fed-provided liquidity should boost Equities Markets to all-time highs. But, we reiterate, this liquidity also generates intolerably high and increasing food and energy price Inflation, and indeed already has, with Real U.S. CPI already at Threshold Hyperinflationary 9.24% per shadowstats.com.
With consumers 70% of the U.S. Economy, this constraint, coupled with unpayable Sovereign Debt will further dampen down Economic Growth. GDP in the U.S. is already a negative 2.20% (shadowstats.com). Consequently, the constrained Earnings coupled with Stagflation will Cause a Black Swan Development in the Equities Markets.
A similar situation also exists in the Eurozone and Japan. Thus it is not surprising to see all three – the U.S., Eurozone, and Japan, in an intensifying race to devalue their currencies in order to artificially inflate their Economies via Monetary Inflation.
But as the former Deutsche Bank Chief Kurt Richebacher (RIP) pointed out, Asset Price inflation caused by Monetary Inflation rather than Savings and Investment is Unhealthy, creates Asset Bubbles, and is doomed to Fail. The Greenspan Fed’s Real Estate Bubble is a case in point.
This ongoing Competitive Devaluation is partly a response to the over indebtedness of these three Sovereigns. And it is partly a response to the fact that all three have contracting economies, even though the Mainstream Media has been loath to report this fact.
But, taken together all three of these Developed Economies are 53% of Global GDP.
Further, much of the Emerging Market Economies’ Economic Health depends on exporting to the Developed Economies. The Ensuing contractions and Inflation will affect the entire Globe. Hyperinflation and Economic Stagnation – Hyper-Stagflation – will have arrived.
Deepcaster’s March Letter describes how this scenario is likely to play out and the Opportunities for Profit and Wealth Protection these developments provide.
Worth considering is Simon Black’s Historical Reminder of how the French government’s past commitment to Monetary Inflation played out.
“By 1789, a lot of French people were starving. Their economy had long since deteriorated into a weak, pitiful shell. Decades of unsustainable spending had left the French treasury depleted. The currency was being rapidly debased. Food was scarce, and expensive.
“Along the way, the government tried an experiment: issuing a form of paper money.
“Within a few years, hyperinflation had taken hold in France.
“…the French government decided to fix this problem by printing even more money…
“When these measures also failed, the French government imposed every control in the book– price controls, capital controls, information controls, people controls. They confiscated lands, they filled the prisons, they waged genocide against their own people.
“Ben Bernanke, a man who has expanded the Federal Reserve balance sheet by nearly 300% during his tenure as central banker, just wrapped up Congressional testimony downplaying the risks of his own money printing:
‘We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery…’
“It’s also quite interesting that the Federal Reserve Chairman is discussing the ‘stronger’ economy, especially when by the government’s own numbers, US GDP contracted in the 4th quarter of 2012. Meanwhile the price of everything from food to fuel keeps getting higher.
“Simultaneously, politicians in the US are racing to avoid imminent ‘sequestration’ budget cuts. They’ve created a problem caused by excess spending, and their solution is to ensure they can keep spending.
“The French were in the same boat in the 18th century. During the time of Louis XV, no one could imagine how French society could possibly function if they cut the welfare system or defense budget. So they kept spending… kept going into debt… and kept debasing the currency.
“We know what happened next.
“The US already must borrow money just to pay interest on the money they’ve already borrowed. The political elite is dangerously out of touch. This time is not different. Assuming otherwise is really dangerous.”
“Trust me, this time is different…”
Simon Black, SovereignMan.com, 2/26/2013
The French Revolution Analogy is perhaps more appropriate than we would wish to believe.
Best regards,
Deepcaster
March 1, 2013
Note 1: Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported February 21, 2013
1.59% / 9.24%
U.S. Unemployment reported February 1, 2012
7.9% / 23.0%
U.S. GDP Annual Growth/Decline reported February 28, 2013
1.61% / -2.20% (i.e., a Negative 2.2%)
U.S. M3 reported February 17, 2013 (Month of January, Y.O.Y.)
No Official Report / 4.59%
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Until recentlly I thought JPM and GLD/SLV were being set up to fail at the benefit of other banks and the FED/shady backstage German sirname folks.
Now, I am not so sure anymore. Are they about to take over the world, become THE world government and main supplier of commodities (food, metal AND energy), as well as main regulator?
That they’re somehow long physical gold is become more and more clear. Likely long paper silver also. But what is they strategy really?
Jim Sinclair’s recent interview answers a lot of your questions.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/3/2_Jim_Sinclair.html
http://sgtreport.com/2013/03/sprotts-rick-rule-is-it-time-to-sell-gold-silver-and-buy-platinum-palladium/
There is just no consistency with these guys…Buy Gold & Silver and Now Sell Gold & Silver.. Okay Doc what is your point of view..
They stated its believed that platinum and palladium will go up faster than gold and silver over the next couple of years. I didn’t get the message that everyone should start liquidating their silver holdings and push into platinum.
The interview is from FutureTrends Money so who knows?!
Means they don’t have a clue like the rest of us…
About a month ago I wrote a snapshot overview of the JPM financial condition after Ed B asked in regards to JPM’s financial strength. In my opinion the only thing holding up these banks and their trading and lending is the assurance that the Federal government will bail them out once again. The problem here is that the depth of the financial issues are in the trillions
Banks do not lay off 19,000 people because they are doing well. They lay off people to reduce head count, toss extraneous people to save vitally needed funds. There’s well over $2 trillion in excess liquidity over loan balances in these Mega Banks. They can’t find places to invest, or at least invest safety. These banks are skating on thin ice and there is nothing on the horizon that indicates the economic conditions wil improve, thus improving the banks financial conditions. These mega banks do make money, mostly through trading the spread in their super low rates and whatever they can get in the bond markets, grinding customer funds for fees or risky positions that often blow up, like the IR Swaps. There are reasons GS calls clients ‘Muppets’ These people have no regard for their clientele.
These people are pretty smart and well connected. They know the winds of hard change are blowing their way. What we know intuitively by study and ‘boots in the street’ experience, they realize through massively expensive research and billions in legal fees defending themselves against the indefensible. The costs of Dodd Frank and Obamacare are yet to be fully facatored into the banking systems.
The result is the same.
They are hunkering down, battening down the hatches and waiting for the storm to hit. From Europe, most likely.
I don’t know when the storm will hit but there is nothing being done, or maybe can be done, to stop the rising tide. This isn’t any new disclosure on this site. We’ve had this figured out for over a year. But if you watch how these people react to the perceived problems coming their way you can judge and evaluate what we might expect, and well in advance of when it will hit. Think of this as watching for hurricanes. You know the damage they create and how to predict their paths. The best way to avoid a hurricanes is get to higher ground.
A better way of looking at it is seeing a falling piano. You can stay under the piano like Wylie Coyote and get smacked, or move 30 feet to the left or right, and avoid it altogether. I think we’re the Roadrunner. Dimon is the coyote.
“These people are pretty smart and well connected. They know the winds of hard change are blowing their way. What we know intuitively by study and ‘boots in the street’ experience, they realize through massively expensive research and billions in legal fees defending themselves against the indefensible.”
Indeed so… not to mention all the tentacles they have into the US Gov, the Fed, and the regulators.
I have no doubt whatever that guys like Dimon and Blankfein know a great deal more about the US and world financial systems and their problems than they are letting on. Watching their actions, however, WILL be illustrative. I agree that they will not be cutting so many employees if everything is going as well as they SAY that it is. Words are one thing but actions are quite another and are the real proof of any situation.
US banks are in much better shape than their EU counterparts but they are still quite vulnerable. While the US was busy strengthening our banks via massive liquidity infusions, the EU PTB were talking a lot but doing very little. Yes, some money got funneled into Greece but that did not cure anything because it was life-support and not a cure. In Spain, Italy, and France, however several of the VERY large banks were and remain quite insolvent. The EU did a few slight-of-hand tricks, mostly via their bond buying program, to make their banking system look better than it really is. This is usually referred to as “papering over the cracks in the walls, while the real problem is a crumbling foundation”. Their problems are systemic and cannot be fixed via infusing more money into a broken system. They keep trying this, however, because it is about all they can do at this stage other than declare the great reset and none of them want to do that.
Great sums of money have been pumped into the EU via the US Fed but nothing like what is truly needed to prevent a derivatives collapse. These are the HUGE problems that the US banks (and EU banks?) have been allowed to shrug off for the time being as being “net zero assets / liabilities”, when they are anything but that. When the derivatives bubble implodes, it will do so with stunning and frightening speed. It will be like trying to stop a balloon from popping. There will be a very loud financial BANG! and it will be over and done before anyone can do a thing to stop it. I have no idea what the EU, US, and UK governments will do at that point but it is likely to be quite hysterical. It will be brand new territory with over a quadrillion dollars worth of “assets” suddenly disappearing in a giant puff of smoke. I am hoping that such a God-awful event will not be part of some Draconian “plan” to assert total dominance over all human beings by first grinding us into economic dust before sweeping us back up, adding a bit of water, and reforming the resulting clay into something more to their liking… whoever the hell “they” may be. If it is possible to declare martial law in the financial realm, then that is likely what will be done. If not, then real martial law may well be declared so that various inconvenient constitutional liberties can be “temporarily” suspended. If we know anything at all about governments, though, it is the permanence of their “temporary” measures.
Yep, that’s kind of what I sense with Europe. Their problems are much larger than ours. The problem is that they’ll make their problem our problem. Probably explains why Uncle Ben shipped $1.2 trillion to the ECB last month, according to Willie.
Yes! The Federal Reserve will keep creating dollars out of thin air to keep running the system of debt. By doing that, the dollar will lose value and precious metals prices will go up. I heard these kinds of information multiple times.