Time to Short

[Domalais]

The way they remove money from the money supply is to sell the assets from their balance sheet. If they only get half as much for them as they paid, then they still have half of the money on their balance sheet and in the banking system. They can not pull out all of the money they pumped in. Your brilliant exit strategy is a failure.

Then they sell twice as many bonds.

The 'issue' you are bringing up is only a problem if the Fed intends to remove ALL the money from the money supply, and run out of assets to do so. Something tells me that abolishing the Federal Reserve Note is not on Bernanke's to-do list.

 

[Domalais]

I thought I should bring some actual numbers into the equation. The Fed holds $1,659,768,XXX,XXX in Treasury bonds as of 15 March.

The last available measure of M3 was in 2006. Then, it was ~$10 trillion, which was double the M2 at the time. If the current M3 is also double M2, that puts M3 at about $20 trillion. With the current monetary base at ~$2.7 trillion, quick-and-dirty money multipler math gives you ~7.4. That means that for each dollar of monetary base, monetary expansion due to fractional reserve banking yields a total of $7.4. That's lower than the money multiplier you would estimate from the required reserve ratio, but that difference can be explained by the $1.6 trillion of excess bank reserves that are not in circulation.

Using 7.4 as the multiplier, that means that the Fed could remove about $12 trillion from the money supply if they sold all their bonds at current value. If we use your pessimistic situation and assume that they sell for only half of their value, $6 trillion, that is still enough to remove 60% of the M2 money supply from circulation. More than enough to cause an instant global economic catastrofuck.

 

[archangel689]

Don't know how wise I am, but I have purchased FAZ, DPK, ERY, and RYNVX these last two days.

Too Early. This is an election year, they're going to inflate the shit out of the currency to buy votes, etc.... wait until after the election is over...

 

[DRHChi]

I thought I should bring some actual numbers into the equation. The Fed holds $1,659,768,XXX,XXX in Treasury bonds as of 15 March.

The last available measure of M3 was in 2006. Then, it was ~$10 trillion, which was double the M2 at the time. If the current M3 is also double M2, that puts M3 at about $20 trillion. With the current monetary base at ~$2.7 trillion, quick-and-dirty money multipler math gives you ~7.4. That means that for each dollar of monetary base, monetary expansion due to fractional reserve banking yields a total of $7.4. That's lower than the money multiplier you would estimate from the required reserve ratio, but that difference can be explained by the $1.6 trillion of excess bank reserves that are not in circulation.

Using 7.4 as the multiplier, that means that the Fed could remove about $12 trillion from the money supply if they sold all their bonds at current value. If we use your pessimistic situation and assume that they sell for only half of their value, $6 trillion, that is still enough to remove 60% of the M2 money supply from circulation. More than enough to cause an instant global economic catastrofuck.

Thanks for that, Domalais. But I think you would agree that the above situations you describe are incredibly unlikely. I personally think it is unlikely that we'll see any tightening whatsoever through 2012, and only a small chance we'll see some toward the end of 2013.

 

[Seraphim]

Short side trading the stock market is UBER dangerous - not because it's hard to time (it is, but...) because the markets are rigged and the big banks/FED will simply keep pumping and pumping and pumping with more phunny munny.

For us small time retail investors, you are MUCH better off buying the dips than shorting.

The goal is the debasement of the USD. In real terms the DOW/NYSE will continue to decrease - in nomimal terms I doubt it's going to drop much, and calling the precise moments in which it will is very, very difficult.

I wouldn't ever recommend shorting this market to anyone.

If you do short though, I hope you make an absolute killing.

 

[pmbug]

Re: Time to short

(linked from the Yahoo! front page yesterday):

Goldman Sachs: Best Time in a Generation to Buy Stocks, Sell Bonds

http://finance.yahoo.com/blogs/breakout/goldman-sachs-best-time-generation-buy-stocks-154722104.html

Caveat emptor (expect stocks to take a bath)!

 

[airborne373]

Don't know how wise I am, but I have purchased FAZ, DPK, ERY, and RYNVX these last two days.

My thoughts, I don't think WW3 will be allowed to happen. Oh they'll put on a show, use their connections in the media for drama of war games and I certainly know of war profiteering and their "false-flag" antics but my heart says it will not be allowed to happen this time - oh I know they are trying but I have a hunch it won't materialize. Oil would then drop and rightfully so. I think Financials are due for a dose of reality. I believe the pressure on the Fed not to monetize is tremendous thanks to the energies that we have helped bring about into the collective conscious. Congressman are less likely to support bailouts due to our political pressure. Hardly any congressman wants to say "I voted for the bailout" and debt ceiling increases.

I think the Federal Reserve banks and elite equity interest in the Fed are scared for survival. Their only weapon methinks is to allow for a stronger dollar to let the market fall to teach us nay-sayers(us Sound Money believers) a lesson to give the illusion that the Fed is vital.

My timing is certainly not going to be spot on, but i believe within these next few weeks we will see a stronger dollar and market drop.

In the long term, one way or another granted their is not debt liquidation(forgiveness) the US Govt must use inflated currency to pay the interest on our debt. Therefore certainly my largest holding is the shiny yellow.

Any thoughts? How crazy am I? Where is gonegolfin?

Cheers and Blesses!

Interesting read. This hypothesis is basically what I am working on for the time being. Since I am new to trading (mostly commodities for now) I am no expert and will not offer any advice. But instead thank those who are sharing their thoughts.

Thank you.

 

[Brian4Liberty]

Who made money shorting?

 

[ILUVRP]

overall the mkt will trade on 2 things , fear or greed , anything else is just the market making noise.l

with the fed giving the banks money for free , you have greed.

with isreal wanting to take out iran ( with our help ) , you have fear.

w/o 401k's pumping the market every week and the banks getting all the free money they want i would be very leary about shorting this mkt .

buy puts and limit your losses.