Save Our Swiss Bank.

The Swiss National Bank abandons the Franc/Euro peg as a potential ECB QE announcement and a Greek exit from the Eurozone draw near.

Oil derivatives have yet to blow up.

The ship has already hit the iceberg. There is a lag effect that will eventually sink the financial system. Just because the boat is still floating and people are dancing doesn’t mean the ship isn’t going down.

The Financial System Has Taken Two Jolts, When Will the Full Impact Be Felt?

Podcast Summary

Intro: 0:00:2:20

Free College!

2:20-5:40 Obama’s free community college proposal, the cost of free education and the value of a college degree is discussed.

@nyinvesting this is a new twist he is taking credit for something that never happened!

— Smaulgld (@Smaulgld) January 19, 2015

QE for the Euro Zone?

5:40-9:40 the potential for a quantitative easing (QE) program for Europe is discussed. The assumption is that QE “worked” in the United States and therefore the EU should implement it!

Japan’s experience with money printing has been a disaster but that example is ignored in favor of pointing to the fudged U.S. employment and GDP numbers. Be like the U.S.- massive deficits and QE (and a low paid part time work force).

If the US economy and housing markets are strong, why was a 3% down mortgage program recently implemented by Fannie Mae and Freddie Mac? Why is St. Louis Fed President, James Bullard talking about the potential of resuming “unconventional” policy?

The economic recovery is based on one pillar- the stock market rising. When that goes, the whole “recovery” goes.

Swiss National Bank Removes the Franc/Euro Peg and Goes to Negative Interest Rates

9:40-12:30 Discussion of the Swiss National Bank’s (SNB) announcement that it was dropping the Franc/Euro peg. SNB dropped the peg in advance of a potential QE announcement from the European Central Bank (ECB) and the Greek elections. The SNB has enough Euro’s on their balance sheet and can’t keep up the pace. A few days earlier the SNB President Jordan insisted that maintaining the peg was essential and that it would be preserved. All the people that relied on the SNB’s public statements were harmed.

The Swiss Franc and U.S. dollar are being rewarded for ceasing their reckless monetary experiments- they still have horrendous balance sheets. The SNB could not keep propping up the Euro indefinitely. The difference between SNB and the Fed’s money printing is that the SNB was printing Franc’s to buy another country’s currency vs. the Fed buying its own country’s treasuries.

The SNB was probably also short the Euro as a hedge.

The Swiss Franc gained on the SNB announcement that it was dropping the Franc/Euro peg.

The Euro fell on the SNB announcement that it was dropping the Franc/Euro peg.

Denmark and the Euro Peg

Denmark also is supporting a Krone/Euro peg – for how much longer?

12:30-14:00 discussion of Denmark’s position vis. a vis. the Euro. The Danish National Bank claims they “have the tools” (the toner and printing press) to defend the peg. Just like Switzerland! Those tools wear out. Denmark will eventually abandon the peg too.

The Impact of Lower Oil Prices

14:00 – 17:30 The impact of lower oil prices on bonds and deriviatives has yet to be felt. People believe the hype of the economic and job “recoveries”.

Every Central Bank for Itself?

The SNB move to remove the peg supposedly was not coordinated with other central banks or the International Monetary Fund. This indicates cracks in the ability of the central planners to keep things under control. The SNB said the reason reject the Save Our Swiss Gold initiative that would have required them to hold 20% of their reserves in gold, was that it would have made it impossible for them to conduct their essential monetary policy of buying Euros to support the Fran/Euro peg. The peg was abandoned because it became to expensive to continue with no end in sight. Self preservation took over- Save our Swiss Bank

Russia and China are not part of the coordination among western central banks and it seems SNB has broken ranks.

Loss of Confidence in Central Banking?

17:30- 20:30 The SNB shock certainly caused many to doubt the efficacy of central bank planning and intervention in the markets. It showed what can happen to paper assets when there are unpredictable, untrustworthy central banks. While it may have been the right thing to do, the SNB move was very deceptive. The President of the SNB said a week earlier that the peg would be defended. The markets relied on that promise. If a CEO of a public company did what the President of the SNB did, he would go to jail.

What happened in Switzerland shows how paper assets driven by unpredictable untrustworthy central banks can go poof overnight #gold #silver

— Smaulgld (@Smaulgld) January 16, 2015

When can a money printing scheme end? Any time they end there is pain as the SNB move highlighted. In order to continue to push the ponzi debt scheme, central banks are reverting to negative interest rates because they can’t afford to pay interest at all.

The Ship Has Already Hit the Iceberg

20:30-23:30 This may be the year it all breaks open because of the lower oil prices, the SNB abandoning the franc/euro peg, the potential for EU QE and a Greek exit from the EU. The limits of papering over problems that have been papered over has probably been reached. There is now a seeming inability of the central banks to coordinate their money printing.

There is a lag effect that will eventually sink the financial system. The ship has already hit the iceberg. Just because the boat is still floating and people are still dancing doesn’t mean the ship isn’t going down. The ripple effects will grow larger, not weaker as time goes on.

23:30-27:00 Is it time abandon the “don’t fight the Fed” stance? It may be the time to not believe the Fed’s ability to keep things together. Cracks are now apparent but people are ignoring them because the Fed has managed to keep the facade of a recovery going for so long. Low oil prices are also giving consumers a false sense of the health of the economy.

The media is complicit in selling the “recovery” narrative:

Example: Reuters explains away the Christmas retail sales miss that occurred despite supposed “solid” job growth and a surging GDP with this headline:.

U.S. retail sales drop biggest in 11 months, but seen as a blip

Yet people believe in the recovery as consumer confidence is soaring.

Real Estate Market/Retail Sales

27:00-34:00 Mortgage interest rates are sub 4% and home sales are down. KB homes announced that their sales were made at the expense of profit margins as they have to offer incentives to buy (ditto for retailers who heavily discount). The housing and economic recovery stories are peddled despite the facts that indicate otherwise. This is the year, however, that a substantial minority of people see through the fake recovery. A predicted surge in mortgage application occurred in early January due to the new 3% down mortgage program.

The Coming Interest Only Mortgage Reset

34:00 – 42:00 discussion of the resetting of many 10 year interest only mortgages to principal and interest. Comparative market analysis and listing prices are discussed.

42:00-43:40 the importance of following all economic trends to analyze the real estate market.

43:40 -47:30 the absurdity of the concept that the Fed will raise rates this summer is discussed. Discussion of the possible excuses given not to raise rates – “soaring dollar” “deflation” “global uncertainty”. The more people have difficulty in earning a living, the more people that will look to government to provide a solution.

47:30 discussion of unprofitable listed stock exchange companies with multi billion dollar market capitalizations. (eg. Trulia/Zillow)

“Solid” is the new media prayer word to describe the “recovery”. If low gas prices persist, congress will institute a tax on gas.

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The Financial System Has Taken Two Jolts, When Will the Full Impact Be Felt?