“Twas the night before a (likely) rate hike”; and not a creature,” certainly on Wall Street, or in Washington or the MSM, is the slightest bit worried. After all, the PPT’s day-and-a-half “hail mary” rally has, for now, reversed perception of the reality of a collapsing global economy to the oasis of “recovery” – by goosing the “Dow Jones Propaganda Average” 400 points, amidst an environment of some of the ugliest economic developments to date.
To that end, the “worst global dollar GDP recession in 50 years” that I discussed yesterday – which, I must emphasize, is not opinion, but objective fact – has unquestionably worsened, in just the 48 hours or so since the PPT intervened, into extremely volatile markets demonstrating the hallmarks of the late summer, post Yuan devaluation panic conditions. To wit, whilst stocks were being merrily propped up, to ensure the Fed’s “face saving” quarter point rate increase could get pushed through (its first in ten years), the CRB Commodity Index closed at another 40-year low – led by the imploding base metal index, which plunged 2.5%. Adding emphasis to the point of just how blatant yesterday’s equity-goosing was, of the last 6,702 trading days in which the market actually rose – over the last 50 years – yesterday ranked 6,699th in terms of market depth. That is, the number of advancers divided by the number of decliners.
The “oil PPT” desperately tried to hold its ground, too, despite yet another massive, “unexpected” API inventory build. However, while its blatantly obvious efforts to hold $37/bbl were successful (until this morning, that is), Brent crude prices – which are far more indicative of global economic activity – plunged by more than 2%, nearly wiping out the entire WTI/Brent premium, as the U.S. Congress lifted a 40-year ban on oil exports. In other words, just like the “final currency war,” the “oil wars” have gone global as well. Thus, it shouldn’t shock anyone that the Baltic Dry Index, easily the best measure of global shipping activity, plunged nearly 5% yesterday alone, to a new all-time low of 484. Or that the PPT’s equally blatant goosing of the widely watched HYG junk bond ETF – which I first warned of three months ago – failed to prevent other credit indicators from weakening further.
As for the benchmark 10-year Treasury yield, it sits this morning – five hours from, LOL, “lift-off” – at 2.28%, smack in the middle of the 2.0%-2.5% range of the entire past year. And this, as we learned yesterday – amidst data “misses” from the housing market index and Empire State Manufacturing Index – that foreigners sold more U.S. Treasuries in October than any month in history. And yet, the 10-year yield only rose by a measly 13 basis points in October – from 2.05% to 2.18%; as clearly, “someone” was aggressively soaking up the $55 billion of foreign Treasuries dumped on the market. Which, in my mind, was very likely the Fed itself.
At this point, it’s not worth rehashing the comedy that “island of lies” employment data has become – as even the Fed admits it no longer correlates to actual labor force health. To that end, how “convenient” was it that yesterday’s “November CPI” report came in at exactly +2.0% on a year-over-year basis? In other words, right on the cusp of the Fed’s supposed “medium-term” target of 2.0%, enabling it to keep all its manipulative options open, to the very last minute. More importantly, the underlying trends within the CPI couldn’t be uglier; as offsetting freefalling commodity-related costs – like energy – was surging “shelter” expenses. More specifically, rents; which, care of the housing bubble the Fed’s ZIRP policy has created, are surging because home ownership has become unaffordable to the masses. Moreover, adding insult to injury, the benefactors of the surging rents are the “1%” that received the Fed’s free money, which they used to drive up property prices. No wonder home ownership is at a multi-decade low; whilst the amount of people living with their parents is at a multi-decade high. Or, for that matter, that Labor Participation and real wages are at 40-year lows, whilst the average “millennial” (18-34 years of age) has less than $10,000 of savings, with more than half having less than $1,000. But don’t worry, the economy’s “recovering” – so what could possibly go wrong if the “data dependent” Fed raises rates, especially when all Wall Street “strategists” and “economists” expect stocks to rise?
To which point, I again pose the question – of exactly what “data” the Fed’s monetary policy decisions are “dependent” on, given that they have purported to be “data dependent” for years, as essentially all data, of all kinds, corroborate the “worst global economy of our lifetimes? Such as, for example, the much worse than expected November Industrial Production figure, of -0.6%; and much worse than expected, nearly recessionary reading of the PMI Manufacturing Index, published as I write this morning? Or, for that matter, what prompted the Fed, in its September 17th policy statement, to say “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term?” Only to remove it six weeks later – despite no discernible improvement – and arguably, continued deterioration, a mere six weeks later? Let alone, to maintain its belief that the “declines” (read, collapses) in energy and import prices, that it first purported 12 months ago, are “transitory?”
I mean, since the October 28th policy statement alone – when the “December rate hike or bust” propaganda campaign commenced – the CRB Commodity Index has plunged 11%, from 195 to this morning’s new 40-year low of 173; slicing through its previous low of 185 like it wasn’t even there. Furthermore, during that same seven-week period – leading up to today’s likely “rate hike” – the Baltic Dry Index plunged from 725 to this morning’s new all-time low (since it was first constructed in 1985) of 484, or 33%. And this, before the seasonally weakest first quarter has even arrived. Last but by far least, the Fed’s “GDP Now” monitoring program reduced its own estimate of fourth quarter GDP growth from 2.3% to 1.7%, putting the all-important “holiday season” quarter in danger of being one of the weakest in recent years. And this, despite the “double seasonal adjusting” algorithms that were engaged this year to fabricate economic “growth,” in the same manner the “birth/death” model fabricates “jobs.”
And then there’s that “little old thing” called the U.S. dollar. Which, amidst the “liquidity vacuum” I predicted two years ago; and the commodity crash that is literally destroying nations; is on the cusp of breaking out to new 14-year highs. Which in and of itself is a deceiving number, given that the “dollar index” referred to here is, for all intents and purposes, the rate of exchange between the dollar and the index’s two biggest components, the Euro and Yen. Against “other” currencies, the dollar is actually up far more, with the average currency at or near its all-time low. And thus, given that everyone from corporate America to the White House is desperate to “win” the “final currency war” with a debased dollar – let alone, as China has aggressively joined the “race to the bottom” – it’s difficult to understand why on Earth the Fed would raise rates now. Let alone, as the so-called “recovery” it purports is already one of the longest in U.S. history; and thus, subject to the lethal forces of “economic gravity” noted above.
Last but not least, is it just me, or is anyone else – much less, the Fed – cognizant of not only the parabolically exploding level of global debt, of all kinds; which can only be serviced with the equivalent of zero interest rates? Which, of course, is why essentially every Central bank is currently amidst a ZIRP or NIRP monetary policy, or on a similar path. Much less, the Fed, whose $4.5 trillion balance sheet, of high-duration, historically overvalued Treasury and Mortgage-backed bonds, stands to be destroyed more than any other?
Oh well, I guess we’ll just have to sit back and watch “Economic Mother Nature” work her magic – as she always does, and always will. Let alone, in the Precious Metals market – where record demand, vanishing inventories, and plunging production will inevitably “team up” to overwhelm the “New York Gold Pool’s” best manipulative efforts.
BREAKING NEWS, AS I GO TO PUBLICATION: Fitch just downgraded Brazil to junk status, causing the Real – and Brazilian stock market – to plunge. Nope, nothing to see here, Janet.