more good stuff from ramsey....hope he posts here soon...
here's another very good read, well not exactly....hide the children...i hope he is wrong, but he's describing the thing i have been afraid might happen may actually BE happening, i've been saying for months "it's the borrower, stupid":
Adler- Verging on Total Financial Collapse
Quote:
The market got crushed by a huge wave of Treasury supply this week. No surprise there. We hypothesized just that last week based on the Treasury calendar. Early in the week I was beginning to doubt the hypothesis, but by Friday it became clear that the law of supply and demand is still the law
of the land. $72 billion in new Treasury paper crushed the Treasury market and put a severe hurting on stocks by week’s end.
Naturally the pundits and the media conjured up all kinds of fantasies to explain the market action, all of which completely missed the point. There is only one reason why stock and bond prices fall. There’s too much supply and not enough demand. The imbalance this week was no secret. It was telegraphed by the Treasury calendar. And we know for certain that that factor will only grow more burdensome in the weeks and months ahead. Perhaps the biggest shocker for most of you will be the fact that the Fed’s balance sheet dramatically contracted this week. Fed credit outstanding fell by over $100 billion. This continues a trend of declines that began 6 weeks ago, which we have been following every step of the way.
The Fed’s much ballyhooed program of outright purchases of GSE and MBS paper has been overwhelmed by the collapse of other lending programs. This week is was the CPR, or what I like to call the Commercial Paper Resuscitation Facility.Apparently not only does no one want to lend, no one wants to borrow
either. The collapse was centered on Financial Company commercial paper. If this market segment is contracting, then the Fed really is pushing on the proverbial string. Its efforts to pump up credit are like trying to fill an expanding sinkhole. They may fill it in some, but it’s still a great big hole.
The all important chart of Fed credit out to Primary Dealers continued its collapse. Here again it may not be a question of the Fed not creating credit. It may be that the dealers just don’t want it. As long as they are of a mind to deleverage, the size of their trading accounts will shrink, and therefore so will their support of the markets.
Consequently there’s just no excuse for anyone to be long any kind of financial assets under the circumstances. And there may be every reason to be short, and not just for a short term trade. Another amazing chart is the Demand Deposits component of M1. It’s not something that I usually include in this report, but watching the giant rise in Institutional Money Funds (IMF), which is not included in any of the official Ms but is in MZM, I began to wonder about what is happening with other immediately liquid accounts. Lo and behold, Demand Deposits had been spiking along with the gain in IMFs until the week of December 29. From then until the last data point on January 19, the series collapsed. This is concurrent with the shrinkage of the Fed’s balance sheet, the bond price crash, and the swoon in stock prices over the past month. I assume that this chart will only look worse when the data from the past two weeks is appended.
The abrupt reversal in the chart of demand deposits not a good sign. I have been arguing for a long time that the massive increases in money supply numbers were pure fantasy. Now we may be beginning to see a dose of reality. Looking ahead, if a whole lot of people decide that they want their money they will find that it’s not there, just like Bernie Madoff’s clients did. The reported money supply data is no better than Madoff’s account statements were.
All of these things are deflationary. The question this brings to my mind is that when the Fed actually does start buying Treasuries, is it going to matter if everybody else is selling? This week FCBs sold Treasuries and so did Primary Dealers. If these actors aren’t there to prop that market, if everybody is
selling at the same time as the Treasury is flooding the market with paper, then the Fed’s task would seem to be hopeless.
In fact, that’s why the Treasury market has turned. The smart money is getting out while the getting’s good. They know better than to expect the Fed to be able to absorb the tidal wave of panic selling that lies ahead.
I think that we are staring into the jaws of total financial collapse, right here, right now, and I don’t know if there’s a way out. I hope to hell that I’m wrong.
wallstreetexaminer.com.
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