2030

care to know about 2030, check the link below:

http://www.dni.gov/index.php/about/organization/national-intelligence-council-global-trends

or download full document from

http://www.dni.gov/files/documents/GlobalTrends_2030.pdf

this is a document prepared by the us, so give it some doubt to whether it could be another form of ideology promotion.

CAPE, what's it about?

there are many arguments about the market top or close to top, now read an article from daily ticker of yahoo.

Major stock averages remain in earshot of all-time highs and this bull market has been nothing if not resilient, repeatedly defying predictions of its demise for five-plus years.

Still, Robert Shiller, Yale professor and Nobel prize winnner, is "definitely concerned" about the outlook for stocks based on the cyclically adjusted price-to-earnings ratio (CAPE) he created. At 26, the so-called Shiller PE is currently well above its long-term average of 17 and approaching levels that previously presaged doom for equities.

Shiller has plotted CAPE going back to 1881 and notes (with some alarm) it has only been higher than current levels three times: In 1929, 2000 and 2007.

"It looks to me like a peak," he says in the accompanying video. "I would think there are people thinking 'it's gone way up since 2009, it's likely to turn down again.' That's what people might plausibly think."

Anecdotal evidence does indeed suggest people are thinking "the end" of this bull run is nigh. But if the market "climbs a wall of worry," that's arguably a bullish sign as my colleague Michael Santoli describes here.

And Shiller is quick to note the CAPE is not a market-timing tool and he remains in the market in his personal account. "We don't know what it's going to do," he says. "Realistically, stocks should be in one's portfolio but maybe lighten up."

Stocks should be in one's portfolio in part because interest rates are so low and "the fixed income market just doesn't look very attractive," Shiller says.

As for the idea, proffered here by Citigroup's Tobias Levkovich, that CAPE is flawed because it doesn't "normalize" for interest rates (as it does for earnings), Shiller says the following: "He's right the very low interest rates are a sign maybe you want to keep more invested in the [stock] market now rather than getting nothing [from bonds]. That ought to help explain the high CAPE but that doesn't mean the high CAPE isn't a forecast of bad performance."

So what does Shiller, whose books include Animal Spirits and Irrational Exuberance, make of the recent steep declines in trading volume and volatility? Watch the accompanying video to find out.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

WORKERS' SHARE IS DWINDLING, PROFOUND IMPACT ON JAPAN

i have always wondered why the so called recovery seems so weak, the reason now is explained in a elaborate manner in the article below, which i think in all, is due to the corp taking a bigger pie and government unwilling to take more welfare into their hands that they allow such transfer of wealth from the consumer layman to the corporates.

with lower real income, consumers can only borrow to spend or spend less, thus eventually denting corp profits in the future.

this trend will likely have a profound impact on japan as well since their corporations have even less to share with their workers as their balance sheets are in shambles. raising the inflation specter will only hurt the citizens of japan, will not heal the current ills of the jap economy and will lead to further distrust with the politicians in power and later maybe, social unrest.

April 18, 2014, 6:15 a.m. EDT

Why you can’t get a raise — it’s simple

You deserve it, but you can’t make your boss pay you more

By Rex Nutting, MarketWatch

MarketWatch

The share of current output that goes to workers as wages has fallen to a record low of 57%.

WASHINGTON (MarketWatch) — For 24 million Americans, the biggest economic question is: “Where can I get a decent job?

For 146 million Americans, the biggest question is: “How can I get a raise?”

Wages and salaries are stagnant, failing to keep up with the rising cost of living. And it’s been that way for years. Median weekly wages of full-time workers, after adjusting for inflation, are no higher today than they were in 2001, and are just $1 more a week than they were in 1979.

Why can’t I get a raise? Ask your boss and he’ll tell you one of three things:

• The company can’t afford it.

• You don’t deserve it.

• You can’t make me.

Takeaways from banks' first-quarter earnings

As we’ll see, only the third reason makes sense. Bosses have all the bargaining power when it comes to wages. As a worker, you’re competing against those 22 million Americans who want a good job, plus millions — perhaps billions — here and abroad who’d be grateful to do your job for less.

The company can’t afford it.

Maybe your boss tells you that he’d like to pay you more, but he just can’t afford it. Extreme global competition, and onerous regulations and taxes are eating me alive, he says. The bottom line? I’m paying you all I can.

While it’s true that there are many businesses that can’t afford to raise wages because they are on the edge of failure, most businesses are doing quite well.

For corporate businesses, after-tax profits are at record levels as a share of national income. Since the recession ended, profits are up 65% to $1.68 trillion last year.

Small businesses aren’t doing quite so spectacularly, but their income is up 13% and their net worth is up 33% to $8.7 trillion since the recession ended.

And the workers? Even after a big gain in the first quarter, median wages are down 3% since the recession ended.

At the same time that wages have been falling, productivity (output per hour) has been steadily rising. Labor is producing more per hour, but getting paid less.

The share of national income that goes to labor (including the CEO’s salary and his stock options) has plunged from about 63% to 57%. The 6% of national income that’s going to profits instead of wages amounts to nearly $900 billion a year.

He can afford to pay you more.

You don’t deserve it.

You’re working hard, your boss says, but you aren’t worth any extra pay. Maybe you lack some essential skills that would make you more productive, or qualify you for a job that’s higher paying.

Some experts, including some of the more conservative Federal Reserve presidents, put a lot of emphasis on the skills gap, not only as a cause of so much unemployment but also as a reason for stagnant wages.

Economic theory suggests that workers should be paid what they are worth and no more. And what are they worth? Theory says it’s the value that each hour of labor provides to the firm, or the marginal revenue product.

The more skilled a worker is, the more revenue she brings in, and the more she gets paid. At least, that’s the theory.

But something strange is happening in the real world. Companies say they can’t find enough skilled workers to hire, and they say it’s hard to retain the skilled workers they have.

The obvious solution is for them to offer a high enough salary to attract the skills they need. That’s just basic supply-and-demand economics. And, yet, companies are not offering higher pay for the skills they need. Wages are not rising much for occupations said to be in short supply.

It could be that higher pay would exceed the worker’s marginal revenue product, but in that case, the company didn’t really need the skills, because it couldn’t put them to use profitably.

They needed skilled workers the same way I need a free pony.

There may be another reason for companies’ reluctance to pay more for skills: corporate culture. Cost-cutting has become so engrained in management’s DNA that companies have become afraid to spend money to make money. Firms lay off skilled teams of workers, even though they could be redeployed in profitable pursuits. Firms refuse to pay more for skills, even though it means they are leaving revenue and profits on the table.

It makes no sense, but that’s management for you.

You can’t make me.

The real reason you can’t get a raise is that the boss doesn’t have to give you one. You might be “worth” it, and the company could “afford” it, but businesses pay only what they have to and not a penny more.

There are a billion reasons you can’t get a raise: That’s how many people are willing to do your job for the same pay.

Globalization is a big factor in keeping wages down, of course. But you’re also competing against a lot of people in the U.S.; some of them may be standing right next to you. Mass unemployment, job insecurity and weakened labor rights give the company all the bargaining power when it comes to setting wages.

It wasn’t always this way. In the 1950s, 1960s and into the 1970s, trade barriers, strong unions and discrimination gave workers (white male workers, that is) more bargaining power to get higher pay. It created the middle class.

Ultimately, however, it helped enable the great inflation of the late 1970s.

The 1980s changed all that. Wages stagnated, as the U.S. began running a large trade deficit, and the Federal Reserve worked hard to keep unemployment high in order to fight inflation. President Ronald Reagan delivered the fatal blow to union power.

And, then, in the 1990s, something strange happened: The Fed consciously decided to let unemployment fall to 4%. And wages rose for the first time in 20 years, because workers were no longer competing against millions of desperate job seekers.

Best of all, higher wages didn’t come at the expense of lower profits or higher inflation.

We’re a long way from 4% unemployment, especially considering the millions who might join the labor force if they thought there might be a job for them. Let’s insist that the Fed let us get there again.

It turns out that, if you want a raise, the best thing to do is get your neighbor a job. 

Cross Border Trading - Fortune or Curse

 HK/Shanghai Exchange Linked Cross Border Trading ELT

Only on Thursday have we heard the announcement of this ELT, HSI shot up right away but enthusiasm cool on Friday, why?

First of all, that is a short squeeze, timed with the announcement to make it more believable and short punters have no time to listen to others of their viewpoints of the scheme and many are frighten to close their positions.

Many fans of China opening up further on the financial front hurray this is a step in the right direction, but is it?

If you looked at the limits of Cross Border trading, it is not really opening up, it merely wants to attract further capital into China as the HK->Shanghai limit is 300b while the other way is 250b. Don't stop here, there is also a daily limit of about 13b vs 10.5b. That is to say if there is a crash, there is limit down ie once the limit is reached, you have to wait till tomorrow to sell. It will be a full 23 days before you can unload the full limit or load up the full limit.

If China is confident about her financial being, since her exchange reserves are way too high, it should allow the invest HK limit to be much bigger than the invest Shanghai limit.

How trustworthy are the financial accounts of listed companies in Shanghai and their shares in HK? No one really knows, but there is the belief that the Chinese knows better than the outside world and this is one reason for the low level of investors interest in China of A shares.

Many A/H shares have very high A share prices, but the China banking shares in HK are higher than those in China, while HSI is heavily weighted towards China Shares these days, we likely would see a southern drifting of the Shanghai market [sell those highly priced A share and buy H share in HK] and a lower HSI because China banking shares in HK will drift lower too.

There is a wait period of six months to realize the scheme and we still haven't heard the details of how to trade aside from the limits and details of qualified investors in China, there should be no comparative qualification of investors in HK.

Once all the full details are out, the markets would have adjusted to more normalized levels ie only a 2-3% difference between A/H shares that are traded on both markets.

Yet this is on the assumption that investors from China still wants to own those China shares, who knows, they might choose to avoid China heavy shares altogether.

Do you hate the FED?

check this out

FORTUNE -- If you hate the Federal Reserve, you have a new hero.

A few weeks ago, Jeremy Grantham, the co-founder of money management firm GMO, called newly appointed Federal Reserve chairman Janet Yellen "ignorant" in the New York Times. He also said the reason for the slow recovery was not the severe financial crisis, continued high unemployment, or the many standoffs in Washington. Instead, he blamed the Fed for ruining the recovery it was supposed to stimulate. To someone who believes in the laws of economics, it's hard to overstate how odd that claim is. It's positively bonkers.

Low interest rates stimulate the economy. The Fed has done everything in its power to keep interest rates down, lower and longer than anyone can remember. That should have helped the economy. And yet the recovery has been just meh.

So, either Grantham is bonkers, or he is onto something. Fortune recently caught up with him to find out.

Fortune: You believe the Fed's policies, particularly quantitative easing, have slowed the recovery. What's your proof?

Grantham: It's quite likely that the recovery has been slowed down because of the Fed's actions. Of course, we're dealing with anecdotal evidence here ecause there is no control. But go back to the 1980s and the U.S. had an aggregate debt level of about 1.3 times GDP. Then we had a massive spike over the next two decades to about 3.3 times debt. And GDP over that time period has been slowed. There isn't any room in that data for the belief that more debt creates growth.

MORE: The Fed doesn't care about the unemployment rate anymore

In the economic crisis after World War I, there was no attempt at intervention or bailouts, and the economy came roaring back. In the S&L crisis, we liquidated the bad banks and their bad real estate bets. Property prices fell, capitalist juices

started to flow, and the economy came roaring back. This time around, we did not liquidate the guys who made the bad bets.

Can you really blame the Fed for the bailouts? That was an act of Congress.

I don't like to get into the details. The Bernanke put -- the market belief that if anything goes bad the Fed will come to the rescue -- has had a profound impact on people and how they act.

Okay, but that's still not proof that quantitative easing slowed the recovery.

There's no proof on the other side, that the economy is any stronger from quantitative easing. There's some indication that

the crash would have been worse and the downturn would have been sharper had the Fed not stepped in, but by now the

depths of that recession would have been forgotten, the system would have been healthier, and we would have regained our growth.

It's economic doctrine that lower interest rates boost the economy. Are you saying that's wrong?

Economic doctrine says the market is efficient. My view of the economy is not really principle-based. Higher interest rates would have increased the wealth of savers. Instead, they became collateral damage of Bernanke's policies. The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle. There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not. It's anecdotal evidence, but we have never had such a limited recovery.

MORE: Janet Yellen: The Fed will steer clear of bitcoin

But the Fed does seem to have boosted stocks. Even if it did nothing else, doesn't a better market help the economy?

Yes, I agree that the Fed can manipulate stock prices. That's perhaps the only thing they can do. But why would you want to get an advantage from the wealth effect when you know you are going to have to give it all back when the Fed reverses course. At the same time, the Fed encourages steady increasing leverage and more asset bubbles. It's clear to most investing professionals that they can benefit from an asymmetric bet here. The Fed gives them very cheap leverage on the upside, and then bails them out on the downside. And you should have more confidence of that now. The only ones who have really benefited from QE are hedge fund managers.

Okay, but then I guess that means you think stocks are going higher? I thought I had read your prediction that the market would disappoint investors.

We do think the market is going to go higher because the Fed hasn't ended its game, and it won't stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market's mean.

That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.

So are you putting your client's money into the market?

No. You asked me where the market is headed from here. But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money. We invest our clients' money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before.

Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.

Tencent [700] vs Apple

click for better view
chart 1 - apple reaching 600
chart 2 - tencent [stock code 700] reaching 600
chart 3 - apple reaching 700 after a steep correction at 600

tencent is a china stock that is the favorite among fund managers and as hedged derivatives for investment banks.

can you tell the difference between apple and tencent from the chart, looks similar hah.

the road ahead for tencent will begin to look rough as 700 is going through the J curve phenomena that apple endured when it is the darling of the stock market. it must keep on rising faster to make it look attractive thus every stock will go through the J curve phenomena when it becomes a favorite in a sector or in a market.

if you have been investing in 700, do some hedge. if you want to invest in 700, you are warned here that the return on investment does not look so attractive from now on unless you see a steep correction, still then, the last leg up will be fast and the drop as well, so you must be contented with making returns that are not 10/20 folds, the time to make easy money has passed, but only in percentage terms of 20/30.

Market volatility will continue, here's why

watch the video of Marc Faber at
http://www.cnbc.com/id/101386850

Global market volatility is not just down to the U.S. Federal Reserve's tapering of its monetary stimulus program, according to influential investor Marc Faber, who warned that the wild swings seen in recent weeks are also down to a global slowdown in growth.
"It would seem to me that it's not just tapering that is putting pressure on markets," Faber, the author of the closely watched "Gloom, Boom & Doom Report" told CNBC on Tuesday. "In emerging economies we have practically no growth, we have a slowdown in China that is more meaningful than the strategists seem to think and than the official, Chinese statistics seem to suggest."
"That then puts pressure on the earnings of the multinationals because most of the growth in the world over the last five years has come from emerging economies," he told CNBC Europe's "Squawk Box." No growth, he said, was causing "a vicious circle on the downside" with slowing emerging economies and inflated asset markets that are now deflating, in turn putting more pressure on asset prices and on the economies.
(Read more: Global stock selloff – Rumble or rout?)

Faber's comments come as volatility in equity markets continued this week, prompting concerns among traders and investors that markets were at the start of a sharp correction. The moves lower follow a rally last year on the back of the U.S. Federal Reserve's monetary stimulus.
(Read more: Look out – Technicians see more selling)
Since the Fed started tapering its monthly asset purchases by $10 billion a month in December and another $10 billion in January, stock markets have taken a tumble. Emerging markets fell first; this week the U.S. and Europe have also seen significant weakness.

Spencer Platt | Getty Images News | Getty Images

On Monday, U.S. stocks saw their worst start to February since 1933 after a manufacturing report heightened concern about the strength of the U.S. economy. Overall factory activity hit an eight-month low in January as new order growth plunged by the most in 33 years.
(Read more: Emerging markets – is it time to bottom fish?)

Illustrating the heightened state of concern among investors, the CBOE Volatility Index rose above 20 on Monday for the first time in four months, while the yield on the 10-year Treasury note hit a three-month low. Faber said he had been advising his readers to buy 10-year U.S. Treasurys over the last few months. He expects yields to rise as investors would seek a safe haven.
"For the next three to six months probably they are a better place to be than equities," he warned. "I don't like [10-year Treasurys] for the long-term because the maximum you can earn is something like 2.65 percent per annum for the next 10 years, but Treasurys are expected to rally because of economic weakness and a stock market decline. In the last few years at least there was a flight into quality – that is, a flight into Treasurys."
(Read more: Markets fear US chilled by more than weather)

Faber warned of the risks of the present global credit bubble and said another slowdown could follow on the back of rising consumer debt levels – which had previously helped to create growth.
"Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows."
- By CNBC's Holly Ellyatt, follow her on Twitter

if you are wondering why the euro is so strong, you are right.

read article below from CNBC

just how much qe is still in the pipeline even with tapering ongoing?

Rome, the next Detroit?

By: Jessica Morris, special to CNBC.com

Rome could be about to follow in the footsteps of bankrupt Detroit, after the country's new government scrapped a measure that would have helped with the Italian capital's budget deficit.
Italy's central government – under new Prime Minister Matteo Renzi – announced on Wednesday it would be dropping a bailout package designed to help plug city's gnawing €816 million ($1.17 billion) budget gap.
(Read more: Italy's new leader Renzi already in the soup)

Kevin Winter | Getty Images

Artisans and merchants gathered in Rome to demand that Parliament the new government in the midst of being formed make an urgent breakthrough in economic policy after the economic crisis shut down more than 372 000 businesses in 2013.

The move could bring Rome one step closer to a Detroit-style default.
Rome's mayor Ignazio Marino responded to the move by saying "In March there won't be money to pay 25,000 city employees, to pay for fuel for the buses, to keep the nurseries open, to collect rubbish or to organise that canonisation of the two popes, an event of a planetary scale" the Italian news agency ANSA reported on Thursday.
(Read more: Fears rise that Italy's 2014 budget could spark further trouble)
He also threatened to bring the city to a halt if the government failed to him answers – warning the ceremony for the canonisation of Popes John Paul II and John XXII on April 27 was at risk.
"I'll halt the city from Sunday … the politicians are lucky because they have chauffeur-driven cars, but the Romans won't be able to move around. People will have to fend for themselves" the local paper Gazetta del Sud reported.

Play Video

'Back to normal' in Italy

Virginie Maisonneuve, deputy CIO of PIMCO, says the political instability in Italy could provide a buying opportunity for investors.

The so-called "Save Rome" decree – which had been passed under the administration of Renzi's predecessor, Enrico Letta – has stirred up controversy in Italian politics.

It was obstructed by opposition parties such as the Northern League and anti-establishment 5-Star Movement (M5S) – and was in danger of not getting cabinet approval by the 28^th February deadline, according to reports by the Italian news agency ANSA.
Italy's new government – which was sworn in last Sunday --is currently working on another package of aid to provide basic funding for services, Marino said, according to the Italian news agency ANSA.
(Read more: Doubts over Renzi's 'ambitious' reforms for Italy)
And yet, wrangling over the aid package will divert resources from Renzi's pivotal package of reforms. Commentators have already highlighted concern as to the five-month time frame for his reform agenda.
The new prime minister has said he wants to overhaul the country's electoral system and constitution by the end of February before tackling labour reform in March and public administration and the fiscal system in April and May respectively.
Rome's budgetary concerns are set against a backdrop of economic trouble in Italy. Its economy grew for the first time in just over two years in the last quarter of 2013 according to Rome-based national statistics office Istat. But it still faces a worryingly high unemployment rate which rose to a record high of 12.9 percent in January.

Secret Bank Bailout

i have been pondering why the usd is so weak against euro and gbp given she said her economic data are almost unbeatable, then usd should be strong.

the reason - too much pumping of credit or usd.

read below

Is a Secret Bank Bailout Coming?

By Geoffrey Pike | Friday, February 21st, 2014

I've heard a few stories about people worried about the condition of the banks.

I've heard other stories alluding to a future bank bailout.

Some people fear what happened in Cyprus is coming to the U.S. They fear their money is not safe in the banks.

And they're right to worry about the money they have in the bank... but not because of a coming confiscation in the style of Cyprus.

Truth is, there is little need to worry about the government coming in and directly confiscating funds from your U.S. bank account. You do have to worry, however, about the government and the Fed working to destroy the value of the money that is in your bank account.

You also likely don't need to worry about your bank going bankrupt as long as you are within the FDIC limit (currently $250,000). It is not that the FDIC has the money to bail out the major banks; it's that the Federal Reserve can do it by creating money out of thin air.

I also don't think you have to worry about another bank bailout in the fashion of 2008. There is rarely an economic issue where there is so much agreement amongst the American people, but in 2008, 90% or more of the American voting population was adamantly opposed to the bank bailouts. The government and Fed almost had a revolution on their hands.

They are not going to let that happen again. Instead, the Fed has been quietly bailing out the banks for almost a year and a half now with few cries of opposition. Why risk causing a revolt when they can do it this way?

---

The Hidden Agenda of QE3

In September 2012, the Fed announced a new buying program. It was the third round of quantitative easing, or QE3 for short. The Fed had already gone through two previous rounds of quantitative easing starting in late 2008.

Quantitative easing is just another term for money creation. The Fed simply buys assets with new money created out of thin air. We use the term "money printing," but most of the new money is actually in the form of digits.

Prior to 2008, the Fed would buy government debt. It would typically buy shorter-term U.S. Treasuries, but it could also buy longer-term debt. It wasn't until the fall of 2008 that the Fed started a policy of buying other assets aside from government bonds.

QE3 actually came about in two steps.

The first one, in September 2012, announced that the Fed would buy $40 billion per month in mortgage-backed securities, or MBS. It wasn't until December 2012, three months later, that the Fed upped the ante and announced it would buy $45 billion in new U.S. government debt each month. This was in addition to the $40 billion per month in MBS.

So the Fed was buying $85 billion in assets through most of 2013, essentially creating $85 billion per month out of thin air. It was just back in December of 2013 that the Fed finally announced the beginning of its taper. It is still buying assets (inflating the money supply), but at a slower pace.

When the buying program was first announced for the MBS, the Fed and the media touted it as a plan to help housing. They reasoned it would lower interest rates and help boost a struggling housing market that had recently come off of a major bust.

While housing across the country has certainly recovered a bit (although not to the all-time highs in most areas), we can't be sure how much QE3 has affected mortgage rates. The rates were already very low when the Fed began buying MBS.

But I believe the main purpose of QE3 was not as stated. Instead, I believe the main purpose — at least for the portion of buying MBS — was to bail out the banks and make them more solvent.

Interestingly, I have seen very little commentary pointing this out, even among many websites devoted to criticizing the Fed. In this sense, the Fed's plan has worked brilliantly (though not for us). It has been able to bail out the banks without having any backlash like it experienced back in 2008.

Buying Toxic Assets

For almost a year and a half, we have been hearing about the Fed buying mortgage-backed securities (MBS). But we are never really told exactly what they are buying and how much they are actually worth.

So what is this $40 billion "worth" of MBS per month really worth? Our best guess is that these are so-called toxic assets. They are non-performing or under-performing loans.

When the housing bubble burst around 2007, most new (and even not so new) homeowners who had mortgages were underwater. Their mortgages were bigger than the values of their houses. In many cases, people simply could not afford the payments. They had miscalculated their ability to pay.

Ironically, most of the distortion took place because of the Fed and its policy of loose money and artificially low interest rates.

As a result, many mortgages held by the banks and government agencies quickly lost value because so many people stopped paying their mortgages.

If the Fed buys $40 billion of MBS in a month, is it really paying the current market value, or is it paying what they were originally worth? My guess is the latter.

---

This is a pure bailout of the banks, plain and simple. They are buying $40 billion each month in assets that aren't really worth $40 billion because many of the mortgages are in default. Pooled together, they are worth something, as some people will continue to pay or try to resume paying.

Imagine a company buys a stock for $100 per share, and then the value falls to $40 per share. Then the Fed comes along and says, "We are going to buy your shares from you at the original price of $100 per share."

In this scenario, the company would be getting bailed out to the tune of $60 for every share bought up by the Fed.

It doesn't matter what the asset was originally worth. It matters what it is worth today. In the case of MBS, the Fed is buying assets that are worth far less than what it is paying for them. It's buying these assets with money created out of thin air.

If you were a bank that had a bunch of mortgages worth a total of $5 billion that originally cost you $20 billion, then you would probably be more than happy for the Fed to come along and buy them up at the original value of $20 billion.

You can push your losses off to the Fed, which is really pushing your losses off on anyone who uses U.S. dollars.

Crazy?

This may sound crazy, but in some ways I prefer the Fed secretly bailing out the banks to it buying U.S. government debt.

At least the money going to the banks is helping to make them solvent, so it isn't a complete waste.

It is bad that we see big bonuses for banking executives that would otherwise be out of business if it weren't for the bailouts. It is bad that the bailouts create moral hazard and encourage more risk-taking in the future. And it is bad that the whole thing is inflationary.

But at least the bank bailouts are going to where you keep your money. The only bigger revolt by the American people than an open bailout would be bank failures without a bailout where the FDIC does not make good on its promises.

Meanwhile, the other part of QE3 — the Fed's buying of government debt — is terrible. It allows the government to run massive deficits at lower interest rates, preventing spending cuts and making things far more painful in the future. The government's spending severely misallocates resources and will only lead to a major correction at some point in time.

Regardless of your thoughts on the subject, you probably don't have to worry about major bank failures right now. Small banks will be absorbed by the bigger banks if they fail, and bigger banks are being taken care of right now. Even with the so-called tapering, the Fed is still currently buying $30 billion per month in MBS.

If you keep your money in an FDIC-insured bank account, it will probably be safe — at least in terms of any direct confiscation. But if you really want to keep it safe, you will probably need to put some of it in hard assets to protect yourself against continued inflation.

Until next time,

Geoffrey Pike for Wealth Daily

HSI MAJOR FALLOUT

during this festive season, we are supposed to celebrate, but not for long.

just early jan, i already alerted readers that market isnt looking good.


this is a 5 months chart of HSI futures of 1 hour, it shows that a true head shoulder has formed, it has already broken to the down side and the pull back has also occurred.

the market looks like to fall to at least 24100 - 22400 = 1700 points from the neckline of 22400 which makes 20700.

the break out happens on 24 Jan, thus the market will hit the above target likely not later than end april.

do go back and make your own chart for 941, 5 and others, you will see a similar pattern if not exactly the same.

when you are aware of a fallout, you should protect yourself and/or try to profit from it.

finally, hope you all have a happy horse year and getting healthier by the day.