Wednesday, February 27, 2013

Central Banks on the verge of a margin call...

Lets face it, if you can print money you can’t get a margin call…right? WRONG. The central banking cartel have expanded their tool sets dramatically to now include the operation of huge hedge funds. These hedge funds are investing in many of the same assets that legitimate hedge funds invest in. What’s more, they are not disclosing GARGANTUAN LOSSES.

For example, the Israel Central bank has openly acknowledged that it has invested a significant sum directly in global equities…not to mention the Swiss Central Bank, which has 12% or more of its entire 800 billion invested in equities - that is roughly a 96 billion CHF equity portfolio…these are NOT safe assets or short-term government debts. Additionally, we know the ECB (European Central Bank) is sitting on billions of losses in Greek bonds, all marked as par and showing profits…The FED has bought lots of assets of dubious quality - Red Roof Inn bonds anyone? These SAFE central banks are operating risky portfolios/hedgefunds.

Not to focus just on equities, central banks are investing heavily in gold and other pseudo currency securities aggressively attempting to manipulate each other’s currencies. The reality of these machinations is that the least worst of these bad portfolios is the Fed’s due to the fact that they have issued less currency relative to the other central banks in order to generate buying power and manipulate asset prices.

The fact is that many of these central banks are buying securities on the open market and ARE sustaining huge losses that are NOT disclosed. Those losses and the artificial leveraging are manifesting themselves in our markets where relationships have been breaking down for sometime now. The huge and ever increasing amount of central bank malfeasance going on outside the US has made the dollar’s reserve status look more desirable than ever and its shortage greater than ever - hence the huge divergence between the dollar and various assets and strength against nearly all currencies.

This continuous structural demand for dollars by central banks is furthering their own financial stress. The Swiss Central Bank does not want to buy dollars - they MUST. Its all part of the impending margin call. All we need is a shock to set off a chain reaction of these “Central Bank Hedgefunds” into a panic.

The beauty of being a central bank is that you are essentially above the law and full disclosure. Gold, for example, has dropped by nearly 25% and central banks were and have been purchasing more gold than ever as we rose to the highs and have been dropping. The reason that we will continue to have dollar strength is that central banks can not continue to sustain and obfuscate losses. The Fed is not being forthright either, they have bought an abundance of assets in which they are sustaining huge losses. Moreover, I am not at all sure that any of these institutions have really thought about what will be required for them to exit given that they seem to think that they can simply make side deals with each other to make things look copacetic…the persistent strength of the dollar, however, is a serious problem and a very ominous sign for them and representative that things are not going well. As long as virtually unmanaged losses continue to build on central bank balance sheets, there will be greater and greater demand for the dollar and greater and greater losses and stresses for them to deal with…in turn exacerbating the cycle till we sustain a parabolic result.

It is absolutely ridiculous to believe Mr. Bernanke or any central bank chairman talking about the strength of their balance sheets when they are all tied together and grossly short of buying power. The patterns in the dollar currently, the EURO and the risk asset markets are all demonstrating internal stress. Abundant megaphone and broadening patterns are symbols of unwinding of leverage and stressed positions…from the looks of things we are about to complete yet another broadening pattern much to the dismay of our central bank chairmen.

Central Bank buying power is limited by the capabilities of its economy and its ability to be viewed as a champion of its causes. Balance sheet losses are a very bad way to convey championing your economies causes and will lead to forced unwinding of positions when they can no longer be obfuscated.

When history judges, I believe that the malfeasance and deception of the Central Banking cartel will be judged with dismay and disgust.
Apparently, even a central banker is not very interested in banks...
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