Before I get to today’s “main event,” let’s focus on the initial topic of yesterday’s weekly podcast with Kerry Lutz; regarding the insanity of Apple buying back $14 billion of stock in the wake of its second miserable earnings release in three quarters. On both occasions, I spent rare, non-Precious Metals “airtime” discussing how irrespective of its superior technology, Apple’s size and market saturation would – in 95% of potential scenarios – permanently render it a mature, staid retail stock. In other words, no matter what the company accomplishes, Apple’s P/E multiple should inexorably contract to the mid-single digits – as has been the case with essentially every retail growth story in recorded history.
After announcing a disaster of a fourth quarter earnings report two weeks ago – due to dramatically slowing revenue growth – the stock had its second massive plunge in the past four months, and third in the past year. And thus, at the behest of no less than famed corporate raider Carl Icahn, Apple accelerated its stock repurchase program – buying back $14 billion of stock in two weeks’ time. The stock subsequently rose a measly 1.5%; frankly, due more to a broad NASDAQ rebound than anything else. In fact, one could say the stock’s entire 35% gain last year was due to the NASDAQ as well, which was up a similar percentage. And thus, investors should wonder, could the “world’s best technology company” have done something more constructive with its cash?
In fact, there’s very little about Apple – other than its world-renowned products – that I admire; as frankly, its post-Jobs management philosophy reflects the defective, Wall Street-poisoned culture of financial engineering that has blighted the world – and accelerated its downfall – since the turn of the century. To wit, despite having more than $150 billion of cash, for example, it borrowed $17 billion last year – to increase “return on capital,” rather than maintain financial conservatism. Worse yet, Apple has exploited countless tax loopholes – won by the well-funded lobbyists unavailable to normal citizens – to avoid taxation on most of its earnings, by holding them offshore. And thus, it sickens me to see they spent nearly all their domestically-held cash on this useless share buyback; as in order to fund further buybacks, they must either borrow more money, or repatriate foreign earnings – and thus, subject shareholders to massive tax liabilities.
Ironically, just $1 billion or so – of the aforementioned $14 billion – could have purchased all the available silver in the COMEX’s registered inventories; which not only would have caused a massive price increase – yielding enormous “returns on investment”; but would have filed a significant corporate need, given that trace amounts of silver are present in essentially every iPhone and iPad. Not that I would expect a mainstream corporation to participate in such a “taboo” investment, of course. However, one day in the not too distant future, Apple’s Board of Directors will no doubt wondering why they levered up to buy overvalued shares, when they could have invested, debt-free, in productive ventures; or, in the case of silver, productive – and invaluable – assets.
And now on to today’s main topic, which we thought quite appropriate on the day Janet Yellen made her first Congressional appearance as Fed Chairman. In other words, our vehement assertion that the Fed – like the government itself, and all its agencies – is clueless. But before I get to the meat of the argument, let’s go over what’s actually occurring today, and what “impact” it’s likely to have. And to do so, I thought I’d rehash a comment made two years ago, from my March 1st, 2012 article regarding the Cartel’s infamous “Leap Day Violation.”
No Fed Chairman has EVER utilized Humphrey-Hawkins to discuss policy changes – let alone, just weeks after a draconian announcement like ‘ZIRP until 2015’’; and I assure you Bernanke, did not do so today.
In other words, irrespective of how much Wall Street and the MSM hype Congressional appearances, the only time the Fed ever materially alters its policy views are at FOMC meetings – or occasionally, official Fed functions like the Jackson Hole Symposium. Conversely, when on Capitol Hill – giving mandated, semi-annual economic testimony in February and August – the Fed Chairman typically parrots EXACTLY what the FOMC stated at its most recent meeting; which is EXACTLY what “Whirlybird Janet” did today, in stating the Fed will maintain zero interest rates indefinitely, and adjust its “tapering” strategy upward or downward, depending on the tone of incoming economic data. Frankly, I wouldn’t be surprised if her “prepared remarks” (below) were copied from the FOMC’s January 29th policy statement.
If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions – and inflation moving back toward its longer-run objective.
The Committee will likely reduce the pace of asset purchases in further, measured steps at future meetings. That said, purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on its outlook for the labor market and inflation – as well as its assessment of the likely efficacy and costs of such purchases.
The Committee has emphasized that a highly accommodative policy will remain appropriate for a considerable time after asset purchases end. Moreover, the Committee has said since December 2012 that it expects the current low target range for the federal funds rate to be appropriate at least as long as the unemployment rate remains above 6-1/2 percent; inflation is projected at no more than a half percentage point above our 2% longer-run goal; and longer-term inflation expectations remain well anchored. Crossing one of these thresholds will not automatically prompt an increase in the federal funds rate, but will instead indicate only that it had become appropriate for the Committee to consider whether the broader economic outlook would justify such an increase. In December of last year and again this January, the Committee said that its current expectation–based on its assessment of a broad range of measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments–is that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal.
–Fox Business News, February 11, 2014
In recent years, essentially all Fed Chairman appearances have been utilized as Cartel “key attack events”; as the more desperate their futile money printing schemes have become, the harder they’ve worked to convince the masses they know what they’re doing. And what better way, of course, than to smash Precious Metals and get their Wall Street partners and the doting, bought-and-paid-for MSM to write of how falling gold and silver prices connote Federal Reserve “success” in its “dual mandate” of maximizing employment and controlling inflation?
This is precisely what they did on the February 29th, 2012 “Leap Day Violation”; although in February 2013 – just two months after QE3’s commencement – PM prices surged when Bennie opened his trap on Capitol Hill, prompting more draconian Cartel measures a month later – when the “Alternative Currencies Destruction” was perpetrated on April 12th-15th.
In hindsight, such paper raids appear suicidal, as global physical demand has since exploded – whilst production has flattened, and inventories plunged. And now, with the entire world realizing inflation is decidedly not contained (per yesterday’s article, “Prediction #4”), and the U.S. labor market decidedly not recovering, new Fed Chairman Yellen walked up to the plate.
Gold and silver had already been acting much better in recent weeks; with far fewer – and more importantly, less potent – attacks at the 6:00 PM EST open of the “Globex” trading platform; the 2:15 AM EST open of the London “pre-market”; and the 7:00 AM EST open of the New York “pre-market.” Sure the typical capping at the 8:20 AM EST, 10:00 AM EST, 12:00 PM EST and 2:00 PM EST “key attack times” has continued unabated. However, prices continue to inexorably rise; despite the so-called “taper” that was supposed to destroy Precious Metals. That is, unless you listened to the Miles Franklin Blog, which stated otherwise. Honestly, when I saw gold do this last night – just 12 hours before Yellen took the podium – I was floored; as not only is gold NEVER allowed to rise at this time of night, but certainly not before Fed Congressional testimony.
Of course, when Yellen’s “prepared remarks” were released, the Cartel did their usual waterfall decline thing. But note how gold didn’t even breach $1,275 to the downside; and more importantly, silver’s eight-month “line in the sand” at $20/oz. yet again acted more like support than resistance…
And Voila! With the PPT gunning equities higher – to “prove” the Fed knows what it’s doing – whilst the 10-year Treasury yield remained comatose at 2.70% – gold and silver prices surged anew; in the former case, putting the key round number of $1,300 into its near-term crosshairs; and in the latter, making $20/oz. look more and more unlikely to be breached on the downside. Certainly not the type of action the “pundits” expected from Fed “taper talk”; including many in our own community!
Which brings me back to today’s key theme; i.e., “do you really believe they know what they’re doing?” Many “conspiracy theorists” think so. However, their analysis is typically based on nothing but supposition and speculation; as opposed to the fact that permeates the Miles Franklin Blog. Frankly, our case would be far easier to prove in court – given that since the Fed’s “reflation” efforts commenced at the turn of the century (particularly, since the 2008 financial crisis), both America and the world at large have only experienced increases in debt, inflation, poverty, currency volatility and social unrest.
Sure, manipulated “stock” and “bond” markets are higher due to Central bank “liquidity” and government intervention; but for “the 99%” that don’t benefit from such insider trading, living standards have materially declined – with little hope, if any, of improvement. And by the way, if the Fed were truly “tapering” QE – which we convincingly refuted in last month’s “Proof the Tapering Mirage” – how on Earth could the 10-year Treasury yield have fallen to 2.7%, particularly now that the Chinese are no longer “accumulating foreign-exchange reserves?” I’ll tell you how. Per the aforementioned article, they are either monetizing more than ever – and thus, lying; or the entire world has become so bearish on the U.S. economy, they are anticipating a new round of QE in the not so distant future. This, by the way, is exactly what we anticipate!
Summing the topic up, I’ll reiterate our long-term view that, as opposed to “knowing what they’re doing,” the financial powers-that-be awaken each morning to a new agenda of near-term, status quo preserving can kicking. Frankly, they appear more like chickens with their heads cut off than sly, conniving savants. And if Occam’s Razor has any historical validity, betting with our view is likely to be more profitable in the long-term. Which, by the way, may not be quite so “long-term” as the majority would expect; as according to this prophetic quote from the great Richard Russell, the END GAME of currency collapse is rapidly approaching.
What’s coming up may not be pretty but I believe it will give birth to a new and better world. The Federal Reserve will be seen as an engine of inflation and will gradually lose favor in the eyes of the US public.
Meanwhile, the bear market will expose the lies and manipulations of the government and the Fed.
–Dow Theory Letters, February 6, 2014
And thus, we plead, the time to PROTECT your assets is NOW.