Bits and Pieces – 20171013, Friday

Commentary: Here is an argument why there will be no market crash this fall. Although the precursors for earlier crashes have been equaled or exceeded, the Fed will intervene to prevent one from happening.

Here’s the background. The Swiss National Bank has bought $80 billion in US stocks: The Swiss National Bank Owns $80 Billion In U.S. Stocks — Here’s The Catch. The Bank of Japan currently owns 44.7% of all JGBs (government bonds) issued: Japan JGBs held by BoJ. The ECB has been buying large quantities of sovereign debt but also corporate bonds ($1.4 trillion euros as of Feb. 2017: An update: Sovereign bond holdings in the euro area – the impact of QE). Zero Hedge reported that Janet Yellen, in addressing the House Finances Service Committee, noted that the Fed by its charter cannot buy stocks but congress can easily change this: Janet Yellen On The Fed Buying Stocks: “Maybe In The Future, Down The Line…”.

The point is that central banks have been buying public sector stocks and corporate debt for years as part of their monetary policy experiments (Quantitative Easing) and have established experience with implementing such programs. They also believe that they are effective tools although many disagree.

In the matter of pension plan under-funding in the US, the situation is a waiting disaster: Unfunded Liabilities of Largest Pension Plans in U.S. Increase, While Assets Rise (also: Here Are America’s Most Underfunded Corporate Pensions), with many municipal plans already broke and scaling back benefit payments. With the disastrous monetary policyies of central banks that have produce zero or negative interest rates on many sovereign investment instruments, pension plans have been forced into stocks and risky corporate and “junk” bond markets to find the 7%-8% returns their plans are based on. A stock market collapse would immediately render a large part of the pension industry insolvent or close to such, thereby creating a huge economic catastrophe.

So what will the US likely do? At the sign of a serious correction with no end in sight, the government will close financial markets. An emergency session of Congress will introduce legislation authorizing the FED to buy stocks and corporate debt. The public will be told that markets will open the next day and the FED will buy any and all securities necessary to restore markets to their position before the breakdown. The result will likely be successful.

Smart money will use this opportunity to exit the market. Unlike QE where the money created to buy sovereign assets and mortgage -backed securities went into the reserve accounts of the large corporate financial institutions, the money for this program will go into the pocket of individual investors. This poses the risk of creating strong monetary inflation. At this point, the risk of hyperinflation is very real and an unpreventable market crash will ensue. The latter is probably 2-3 years away at the earliest. IMO.

WWIII: Why: Britain Draws Up Plans For War With North Korea? There is no reason for Britain to go to war with NK – it poses no threat. Until I read this I had viewed the NK issue as one between NK and the US with China, South Korea and Japan in particular, potential players depending on how the initial action unfolds. If Britain is ready to jump in, what about other European countries, Canada and NATO?

And while we’re at it, we’ll see you and raise you a brigade or two: NATO Launches New Black Sea Force to Target Russia. Oh, and let’s poke China in the eye again as a token of friendship: US Destroyer Carries Out Trump’s 4th “Freedom Of Navigation” Operation In South China Sea.

Moving the carriers back into position: Trump Sends Second Aircraft Carrier To Korean Peninsula With 7,500 Marines Aboard. The last time he did this near the beginning of the NK dispute, he pulled them back. Either the rhetoric has significantly heightened or he’s ready to pull the trigger. With Trump, only Trump knows and maybe even he doesn’t know until an early morning tweet-storm. Another analysis of the NK situation comes from George Friedman’s shop: North Korea’s Next Test.

Bits and Pieces: A small piece of CIA standard practice of torture unveiled: Unsealed CIA Memos Provide Shocking ‘Salt Pit’ Black Site Details. Nice people.

To close on a lighter? note: Austria’s Burka Ban Causes An Arrest Of Man Dressed As Shark. If I were Big Bird I would be very afraid.

Trump’s rants and tweet-storms have not abated leading to the possibility that this is a sign of his central modus operandi – respond to emotional assessments of situations. If this propensity increases, it seems possible that he will be impeached at some point: “I Hate Everyone in the White House!”: Trump Seethes as Advisers Fear the President Is “Unraveling”. Trump is self-destructing.

Finally, an excellent article by our friend Paul Merkley commenting on the latest Liberal appeasement of the Indigenous community in Canada: The Adopted First Nations Children of the 1960S are Being Scooped Back.

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