Wealthbuilder Market Brief 6th

. December 2013

Short term stock market pull-back developing. It is highly probable that a short-term correction is developing in the markets.

The price point to watch on the Dow Industrials is 15750 and on the Transports it is 7100. If

these levels hold solidly over the next few days then we will more than likely have a year-end

rally. However, if they break over the next week or so the Industrials could quickly fall by 1000

points to the October lows.

I believe that a solid correction is badly needed to set the markets up for 2014. I think a little pain

now would be better than a later market rout that would do so much technical damage

that a true bear market would ensue. Such a development would be a disaster for the world

economy.

At the moment the FED is walking on a tight-rope. Quantitative Easing has to cease. It is utterly

unsustainable. The FED chairwoman knows this but the issue is timing. The next American

presidential election campaign will kick in earnestly in 2015. The departure of the Obama

administration is going to bring in its own inevitable instability. Therefore, I reckon, Janet

Louise Yellen will act on tapering QE early in 2014.

I believe the market is beginning to sense this. Let’s hope she can pull it off without starting a

full blown recession generated by a collapsing stock market, imploding real estate markets and a

new sovereign debt crisis caused by exploding interest rates.

Dow Industrials: Daily

Dow Transports: Daily

The Cypriot “bail-in” policy nightmare continues to stalk Europe. As reported by Goldcore 4

th. December 2013:

“Bail-Ins And Deposit Confiscation Coming, Irish Finance Minister Michael Noonan Confirms

At ‘Future of Banking in Europe’ Conference.

A major conference on the future of banking yesterday heard contributions on a European

banking union which is being negotiated by Eurozone finance ministers. One of the aspects of

that union will be a 'bail-in' of deposits when banks fail in the future. Michael Noonan, Ireland’s

Minister for Finance confirmed yesterday that bail-ins or deposit confiscation will be used.

The toolkit underpinning the Single Resolution Mechanism is provided for in the bank recovery

and resolution proposal (BRR) which was agreed last June in Council under the Irish

Presidency. The proposal provides a common framework of rules and powers to help EU

countries manage arrangements to deal with failing banks at national level as well as cross-

border banks, whilst preserving essential bank operations and minimising taxpayers' exposure to

losses.

One of the main pillars to the BRR framework to facilitate a range of actions by authorities are

“resolution tools”. Noonan confirmed yesterday that resolution tools include the sale of

business, bridge bank and asset separation tools and also the use of bail-ins.

The era of bondholder bailouts is ending and that of depositor bail-ins is coming.

Preparations have been or are being put in place by the international monetary and financial

authorities for bail-ins. The majority of the public are unaware of these developments, the risks

and the ramifications.

It is now the case that in the event of bank failure, your deposits could be confiscated.

Let's be crystal clear: The EU, UK, the U.S., Canada, Australia and New Zealand all have plans

for bail-ins in the event of banks and other large financial institutions getting into difficulty.”

The Fed owns one third of the US bond market. This is the scariest report I have read in years, issued by Stone McCarthy on the December 6

th.

It emphasizes the enormity of the task Bernanke has left Janet Yellen:

“The most important chart that nobody at the Fed seems to pay any attention to, and certainly

none of the economists who urge the Fed to accelerate its monetization of Treasury paper, is

shown below. It shows the Fed's total holdings of the entire bond market expressed in 10 Year

equivalents (because as a reminder to the Krugmans and Bullards of the world, a 3 Year is not

the same as a 30 Year). As we have been pounding the table over the past year, the amount of

securities that the Fed can absorb without crushing the liquidity in the "deepest" bond market in

the world is rapidly declining, and specifically now that the Fed has refused to taper, it is

absorbing over 0.3% of all Ten Year Equivalents, also known as "High Quality Collateral",

from the private sector every week. The total number as per the most recent weekly update is

now a whopping 33.18%, up from 32.85% the week before. Or, said otherwise, the Fed now

owns a third of the entire US bond market.

At this pace, assuming Janet Yellen keeps delaying the taper again and again over fears of how

"tighter" financial conditions would get, even as gross US bond issuance declines in line with the

decline in deficit funding needs, the Fed will own just shy of half the entire bond market on

December 31, 2014... and all of it sometime in 2018.”

Charts Courtesy of StockCharts.Com

© Christopher M. Quigley 6th

. December 2013