Decentralization and devolution of state power is always a good thing, regardless of the motivations behind such movements.
Hunter S. Thompson, looking back on 60s counterculture in San Francisco, lamented the end of that era and its imagined flower-child innocence:
So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark — that place where the wave finally broke and rolled back. Does today’s Brexit vote, win or lose, similarly mark the spot where the once-inevitable march of globalism begins to recede? Have ordinary people around the world reached the point where real questions about self-determination have become too acute to ignore any longer?
In short, there is an alternative to Yellen’s Keynesian babble and the policies which fuel the Wall Street casino’s endless party for the 1% and the recurring financial market booms and busts. Even then, the latter take their toll on Flyover America far more destructively than on the fast money gamblers who always seem to get the word early and get out of the way in time; or get bailed-out like Jeff Imelt and John Mack, if they don’t.
So abolish the FOMC. Liberate interest rates and the yield curve so that the right price can be discovered on the free market. Restore the Banker’s Bank. Bring back the green eyeshades and a mobilized discount rate. Adopt Super Glass-Steagall and break-up the big financial conglomerates.
Finally, recognize that debt is not the keystone to prosperity and that if policy is to lean at all—–it must be in behalf of less debt, not more, as far as the eye can see.
If you think that a referendum vote on June 23 by UK citizens on whether to withdraw from the European Union (called Brexit, short for British Exit), is simply a proxy on whether the UK should dislodge itself from the edicts of Brussels, think again. It’s morphed into a much broader debate on whether citizens worldwide should surrender their right to a participatory democracy in order to further the interests of multinational corporations, secret trade agreements packed with secret court tribunals, global banking hegemony and central banks attempting to keep all these balls in the air for their one percent overlords.
Beyond Human Capacity Distilling down and projecting out the economy’s limitless spectrum of interrelationships is near impossible to do with any regular accuracy. The inputs are too vast. The relationships are too erratic.
The economy – complex and ever-changing interrelations.
Image credit: Andrea Dionne
Quite frankly, keeping tabs on it all is beyond human capacity. This also goes for the federal government. Even with all their data gatherers and number crunchers they are incapable of stitching together an exact understanding of where the economy is really at, let alone where it is going.
What’s more, the economy is always evolving and changing in ways that are hard to discern in advance. Cause and effect do not correlate with the simple precision of a balance scale. When one input decreases, an apparently correlated one can somehow increase.
For example, when incomes go down, apartment rents should also go down. Lower incomes should result in lower price competition for apartment rents and, thus, lower rents. Logic would support the inherent truth of this premise.
Yet, in Sacramento California, and many other places, the exact opposite has happened. Median incomes have declined 13 percent, while median apartment rents have increased 13 percent. How does that work?
Perhaps too burdensome development regulations have something to do with it. Or maybe lasting fallout from the great mortgage bust is the culprit. Certainly, the shortage of affordable rentals is driven by a great variety of factors.
Of course, with the Fed out of the QE game for now, and discussing tightening monetary policy further, the only question is whether “organic economic growth” has actually taken hold?
The Fed’s hope has always been that at some point they would be able to wean the economy off of life support and it would operate under its own strength. This would allow the Fed to raise interest rates back to more normalized levels and provide a policy tool to offset the next recession.
It has taken a massive amount of interventions by Central Banks to keep economies afloat globally over the last seven years and there is little evidence suggesting growth is accelerating. In fact, there may be more evidence suggesting quite the opposite.
With expectations rising the Fed will further tighten monetary policy in June, the lack of liquidity for the markets may become a much bigger issue not only for investors, but for the economy as a whole. In other words, excessive exuberance may have a high cost to pay.
Last year, we covered a story coming out of Texas in which the state government was planning to institute a state-controlled "gold depository" that would allow individuals to store their gold in a presumably safe place outside the United States banking system.
This proposition was met with emotionally-charged denunciations from Americans in far away northeastern American states where it was claimed this measure was contrary to the "supremacy clause" and just a terrible idea in general because it undermined faith in the US's central government and the Federal Reserve System.
Well, in spite of the disapproval of New Yorkers, the Texas legislature passed the bill, and the governor signed it into law last June.
Intuitively, we think that central banks might have lent/leased gold to maintain the status quo and mask what is technically a default. However, rather than being used to provide temporary liquidity, it is possible that loans/leases are being rolled. This is not sustainable and implies dual ownership claims.
Going forward, the market is vulnerable to several trends in physical gold trading patterns:
Since 2009, central banks have switched from net sellers to net buyers ; The extraordinary strength in Chinese gold demand as indicated by withdrawals of bul-lion on the Shanghai Gold Exchange, e.g. an astonishing 2,597 tonnes, or more than 80% of all of the gold mined worldwide, in 2015; The rebound in gold held by London-based gold ETFs, which has been increasing since January 2016, as western investors dip their toes back into physical gold; and Net gold exports by the UK – mainly to support strong Asian (especially Chinese) demand - which have been a feature of the market since 2013. But the vulnerability is not confined to current trends in physical bullion.
If there is no gold float, there is nothing supporting more than US$200 Billion of trading every day in unallocated (paper) gold instruments which accounts for more than 95% of gold trading in London.
The convention of trading unallocated gold has been based on a fractional reserve system. It works as long as gold buyers retain confidence that the banks could deliver physical gold if demanded, but our analysis suggests that they could not.
Just 5 weeks ago, on March 28, we noted that the so-called “smart money” commercial hedgers had reached their largest net short position in silver futures in more than a decade. Well, for us to dedicate another post to this situation within such a short time frame, there had to be either a massive reversal in that positioning, or a further expansion in shorts to an all-time record. As the title suggests, the latter is the inspiration for this post.
The prospect for the birth of a new Bull-Run in Silver speaks to a broader cyclical theme that relates to a dying dollar bull, and a corollary cyclical sentiment shift back toward a strong market preference for tangible vs. paper assets.
From its current cyclical low in December of 2015, Silver Bullion has risen 30%. In the broadest of terms, the above referenced theme would suggest the early adoption of a general pair’s trade that was short the dollar and long commodities.
At present, from an Elliott Wave perspective, the 30% rally in Silver is somewhat tentative in terms of whether or not its wave structure is exhibiting impulsive (bullish) or corrective (bearish) patterns.
Over the last couple of week’s, I have written extensively about the breakout of the market above the downtrend resistance line that traced back to the 2015 highs. To wit: “With the breakout of the market yesterday, and given that ‘short-term buy signals’ are in place I began adding exposure back into portfolios.
This is probably the most difficult ‘buy’ I can ever remember making.” I also stated that it was probably a trap and that I will be stopped out in fairly short order. But that is the risk of managing money. It was only a matter of time before the extreme short-term extension of the market begins to correct. Like stretching a rubber band to its limits, it must be relaxed before it is stretched again.
The question is whether this is simply a “relaxation of the extension” OR is this a resumption of the ongoing topping and correction process? Let’s take a look at a few charts to try and derive some clues as to what actions we should be taking next.
If the current bullish price action holds by Friday's close, I am buying this breakout because I have to. If I don’t, I suffer career risk, plain and simple.
But you don’t have to. If you are truly a long-term investor, this rally is just a rally. There is no confirmation fundamentally or technically that the bull market has yet resumed. Such leaves investors with a tremendous amount of downside risk relative to the reward that is currently being offered.
However, investor patience to remain conservatively invested while what seems like a “bull market” is in force is an extremely difficult thing for most to do.
So, if you buy the breakout, do so carefully. Keep stop losses in place and be prepared to sell if things go wrong.
It is important to remember that the majority of those touting the bull market are simply just getting back to even after an almost year-long sludge. For now, things are certainly weighted towards the bullish camp.
If we were miraculously appointed by President Trump to run the Fed, our first act would be to put the gun down. We would announce that, henceforth, anyone waiting for the next rate hike would have to wait a long time.
Because we wouldn’t be making any rate hikes… or rate cuts either. Instead, interest rates would have to take care of themselves. Lenders and borrowers would set their own rates.
But what about if banks got into trouble? Ah… we’d take care of that too. We’d point out that the Fed would no longer lend to them in an emergency. Our announcement: “To any bank that runs out of money: Drop dead.”
The anti-establishment trend has picked up its pace this morning, showing no signs of abating. Around 2:30 a.m. New York time, Wall Street traders were stunned by the news that U.K. voters had backed leaving the European Union by 51.9 percent versus a remain vote of 48.1 percent in the anxiously anticipated Brexit referendum held yesterday.
Today Janet Yellen came before the Senate Banking Committee to answer questions following last week’s announcement that the Fed will keep the Federal funds rate steady in light of May’s devastating job numbers. While the big media headline focused on Yellen echoing the Bank of England’s warnings against Brexit, the biggest take away may be Yellen’s tacit admission that the Fed’s consistently poor track record of projecting rate increases has crippled its credibility in financial markets.
DoubleLine’s Gundlach says ‘central banks are losing control’ … Jeffrey Gundlach, the chief executive of DoubleLine Capital, said on Tuesday investors are dropping risky assets and turning to safer securities including Treasuries and gold because they are losing faith in central banks. –Reuters
We were amazed in March when, during the last Fed press conference, CNBC's Steve Liesman and traditional Fed cheerleader went so far as to ask a stunned Janet Yellen whether she has a credibility problem: "Does the Fed have a credibility problem in the sense that it says it will do one thing under certain conditions, but doesn't end up doing it? And then, frankly, if the current conditions are not sufficient for the Fed to raise rates, well, what would those conditions ever look like?"
Janet Yellen's jumbled 261 word response was one for the ages (and can be read here), but that particular exchange was nothing compared to what Steve Liesman said today when, in similar words he asked the same question, and got the same garbled response.
But it was what he said afterwards that was amazing. And we quote:
I think the first rate hike cycle is over. What Janet Yellen said in response to my question, and if you look at what has happened to the rate hike cycle, is pretty profound. It's as close to the Fed getting to capitulation as I've ever seen, about the efficacy of Fed policy, about the outlook for the economy.
I just want to read this: "I think all of us are involved in a process of constantly reevaluating where the neutral rate is." Basically they see these headwinds to the economy as becoming part of the new normal. This five-eights decline to the Fed Funds rate outlook for 2018 is pretty profound and GDP remained the same. That's very important. And I am going to give rick a blue ribbon because Rick represents the markets. Rick - the markets won. The Fed has completely capitulated to the market's point of view. The Fed is not leading the markets here, the markets are leading the Fed. Every single time." To which Rick's response is absolutely spot on: "there is no market. There is Janet. There's Mario Draghi. There is Abe. There is no market left."
And, just to validate this point, Gundlach chimed in that "The 'rate hike cycle' has left the building"
Last month, central bankers and finance leaders from the Group of 7 (G-7) advanced economies met in Sendai to discuss the global economy at large. As expected, the United States cautioned Japan, a US currency watchlist country, to refrain from taking further steps to manipulate its currency. This warning came as a result of finance minister Taro Aso hinting that his country was “prepared to undertake intervention” in the foreign exchange market in order to weaken the yen.
The art of brevity was not lost on Abraham Lincoln. It is that brevity in all its glory that shines through in what endures as one of the most beautiful testaments to the art of oration: The Gettysburg Address rounds out at 272 resounding words. The nation’s 16th President humbly predicted that the world would quickly forget his words of that November day in 1863. Rather, he said, history would solely evoke the valiant acts of men such as those whose blood still soaked the consecrated battleground on which they stood. Of course, Lincoln was both right and wrong. Neither the men who sacrificed their lives nor his words would be forgotten. We remember and know that a terrible and ever mounting price would ultimately be paid, some 623,026 American lives, the steepest in man’s bloody history.
In what can only be described as the pinnacle of prescience, a 28-year old Lincoln foretold of the coming Civil War, which he presaged would come to pass if the scourge of slavery remained unchecked. In an address to the Young Men’s Lyceum of Springfield, Illinois in January 1838, Lincoln spoke these haunting words: “If destruction be our lot, we must ourselves be its author and finisher.” The enemy within.
Since that devastating brother against brother Civil War, so prophetically foreseen by Lincoln, more than 626,000 American soldiers have lost their lives defending the ideals and freedom of our Union. Today that Union stands, but it must now face the threat of an enemy rising within its borders to wage a different kind of war against our hard fought freedom.
To be precise, today’s dangers emanate from our nation’s boardrooms, where officers and executives have authorized an era of reckless abandon in the form of share buybacks. In the event the word ‘hyperbolic’ just came to mind, the ramifications of a lost generation of investment in Corporate America should not be lightly dismissed. This trend, above all others, has weakened the foundation of U.S. long term economic growth.
At the SALT conference, MB Advisors founder and CEO Milton Berg gave an epic interview with Erik Schatzker in which Berg predicted that we are on the verge of a 30 year bear market in both equity and fixed income, and he also gave some sage advice to the average retail investor on what to do with their money at this point.
Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.
If the world’s economies were really out of intensive care, why would ultra-radical monetary policies like helicopter money be increasingly debated at the highest level of governments? Also, how come 70% of Americans believe the US economy is on the wrong course? And why do almost half of US citizens admit they couldn’t come up with $400 to meet an unexpected need? Yes, I know why ask why? And it is what is, and a bunch of other clichés. But this isn’t normal, it isn’t healthy, and - at least in the opinion of this author—it isn’t going to end well.
“I can’t really explain the current rally. All I know is that prices are dictating policy at the moment. We can deny it. We can rail against it. We can call it a conspiracy.
But in the “other” famous words of Bill Clinton: “What is…is.”
The markets are currently betting the economy will begin to accelerate later this year. The “hope” that Central Bank actions will indeed spark inflationary pressures and economic growth is a tall order to fill considering it hasn’t worked anywhere previously. If Central Banks are indeed able to keep asset prices inflated long enough for the fundamentals to catch up with the “fantasy” – it will be a first in recorded human history.
My logic suggests that sooner rather than later somebody will yell ‘fire’ in this very crowded theater. When that will be is anyone’s guess.
A big move is coming in the S&P 500 and it will take everyone’s breath away. Simply put: The S&P 500 has traded in a multi-year consolidation range with a high of 2134 and a low of 1810. A breakout or breakdown out of this range could result in a measured technical move of the height of the range, i.e. 2134 – 1810 = 324 handles. Consequently a break toward the upside would target 2458 (15% above all time highs) and conversely a breakdown would target 1486 and represent a 30.4% correction off of all time highs.
I’ve outlined the bear arguments in detail in Feeding the Monster, so I won’t bother rehashing them here. However, in analyzing the larger market structures an interesting duality is emerging: A fight for control between the historic precedence of earnings and technicals and a very much divergent development in money supply, one of the key drivers behind stock prices since the financial crisis.
While ending the Fed may still seem like a pipe dream, at least until the market's next major crash at which point the population may finally turn on the culprit behind America's serial boom-bust culture, the U.S. central bank, Levin's proposal would get to the heart of the most insidious conflict of interest in the US: the fact that the Federal Reserve works not for the people of America, but for its owners - the banks.
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