The "Bond King" says Credit Supernova turns 2013 into the Big Bear

Discussion in 'Wall St. News' started by Xspurt, Feb 10, 2013.

  1. Global ‘credit supernova’ turns 2013 bull into bear
    Commentary: Bill Gross warns about Fed’s cheap-money schemes

    SAN LUIS OBISPO, Calif. (MarketWatch) — Bill Gross predicting a “Credit Supernova.” Yes, that’s what the “Bond King” sees dead ahead. He knows, his firm has $2 trillion at risk of collapsing into the “Black Hole” coming after the Credit Supernova, when the Federal Reserve cheap money finally explodes in America’s face, brings down the economy, again.

    Gross’s Credit Supernova metaphor is the explosive headline on his latest Pimco newsletter. So what’s a supernova? Jump over to the’s parallel universe where you’ll discover a supernova happens when a “blindingly bright star bursts into view in a corner of the night sky ... burns like a ... brilliant point of light.”

    A supernova is “the explosion of a star that has reached the end of its life ... Supernovas can briefly outshine entire galaxies and radiate more energy than our sun will in its entire lifetime.”

    Yes, a supernova is the “explosion of a star that has reached the end of its life.”

    “End of its life?” Is America’s star economy burning out? Sure sounds like it: Gross is doing more than just hinting with his Credit Supernova metaphor. He’s predicting the collapse of the American economy and global financial markets, far worse than the 2008 Wall Street bank credit collapse, worse than the 2000 dot-com crash.

    As the folks over at Business Insider put it: “Investment banks have morphed markets with ‘Ponzi Finance.’ And time is almost up.”
    Fed’s Ponzi scheme: Credit expansion killing economic growth

    Business Insider’s Matthew Boesler summarized Gross’s rather cryptic metaphor this way: Gross’s newsletter “tackles the relationship between credit expansion and real growth” where under Bernanke the Fed’s cheap-money bubble makes our monetary problems get bigger as the Fed keeps kicking them down the road.

    So the Fed’s “Ponzi Finance” must run its printing presses full blast to pump more and more credit into the economy “just to cover increasingly burdensome interest payments, with accelerating inflation the end result.”

    The problem is huge: Bernanke’s Ponzi Finance is self-sabotaging. Endless cheap money upsets the balance between credit expansion and real economic growth, resulting in diminishing returns: “Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result.” Bad news.

    Yes, Wall Street and central banks worldwide are the engine driving Bernanke’s Ponzi scheme straight into a Credit Supernova bubble. Why? Because in the past generation more and more of the Fed’s new credit was channeled into market speculation, distorting the balance between markets and the real economy.

    “Investment banking, which only a decade ago promoted small-business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi Finance.”

    Gross warns: As a result, “our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic — it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets,” a trend that’s already accelerating as more and more investors wise up to Wall Street’s dangerous Ponzi Finance, anticipating that a Credit Supernova will soon bring down Bernanke’s totally mismanaged monetary system, probably in 2013, months before his scheduled retirement.
    After Credit Supernova will banks see the light ... or stay blinded?

    Alan Blinder is familiar to Wall Street Journal readers and investors. The former vice chair of the Federal Reserve just published “After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead.” His recent New York Times op-ed piece is a perfect playbook of what’s coming after Wall Street’s Credit Supernova explodes.

    Blinder opens by quoting Hegel: “What experience and history teaches us is that people and governments have never learned anything from history.” But then Blinder adds, “actually, I think people do learn. The problem is that they forget, sometimes amazingly quickly. That seems to be happening today, even though recovery from the economic debacle of 2008-9 is far from complete. Evidence of this forgetting is everywhere.”

    His list of Wall Street’s mental blocks is all too familiar. They are blind, in denial. So Blinder “encapsulates what we must remember about the financial crisis into 10 financial commandments, all of which were brazenly violated in the years leading up to the crisis.”

    Imagine his frustration, like Moses coming down from the mountain, seeing the people partying, honoring false idols, the golden calf of profits. Wall Street did the same, forgot in 2000, forgot again in 2008, went back to the same old tricks.
  2. Hmmm, and a certain poster who has a dubious track record here at ET just proclaimed today to be "super bullish". That makes me nervous :)
  3. Excellent point.:)
  4. EGBOK == Everything is Going to Be OK.. if everybody just says that all the time all the risk will be gone from the markets..
  5. No one spews more crap daily that Pimco.
  6. Pimco has alot of competition in the "crap spewing" category. Media pundits aside, I think Ben and his cohorts spew as much, if not more, than Bill Gross.
  7. I think Gross is one of the smartest guys around. And I believe the instability in the system is incredible. That said, sometime in the last couple of years Bill has become another talking head. He shoots for headlines and, of course, gets them. Problem is it has become impossible, as with all talking heads, to tell what is hype and what is their best judgment. Very sad that a man with his ability feels he needs to compete with media pundits for attention.
  8. At some point the Federal reserves writes off US debt. Suddenly the Federal Government debt is lowered by two thirds. Who gets hurt?
    The problem goes away. This is the benefit of this artificial branch of Government.
  9. not even close lol. Gross and clowns are non stop.
    #10     Feb 11, 2013