I have to admit that when the ECB unleashed over $1 trillion of cash in exchange for trash in December and February I fully expected gold and silver to go up as the money migrated to hard assets. Over 500 banks in Europe were given just three years in which to double the money they were lent and use it to redeem their junk from the ECB without having it kill their balance sheets. And initially gold and silver did go up. But then an odd phenomenon happened. The banks’ proprietary trading desks realized they can make even more money creating and trading volatility in the US stock market. Short the high flyers and go long the financials that have been handed this massive lifeline…what could be easier? Who knew the high flyers could go higher? Who knew all the shorts would have to cover when earnings came in better than expected? Which is why we are seeing the most desperate, insane earnings season it has ever been my displeasure to witness. Amazon and Expedia were up 14% and 25% respectively yesterday on earnings beats that historically would have moved their shares less than 5%. Sandisk missed and got taken to the woodshed for an initial 25% decline (now recovering, of course). You think retail investors will come back to this? Snort.
In the final scene of the movie Too Big To Fail, Bernanke and Paulson infamously ponder the effects of loaning the banks $700 billion in TARP funds with the expectation they will use it to stimulate the economy. “They will loan this out, won’t they? Won’t they?” You have your answer, Central Banksters of the world. They won’t. Nor will they use it to save Spain, Italy, or even France. Why lend Spain and Italy money at a measly 5% per annum with no possibility of principal repayment when you can make 10 times that day trading the most liquid market in the world? The Fed and ECB need a new song, cuz providing the banks with liquidity is only creating greater income disparity and more market dysfunction.