Following last week’s soon-to-be-infamous Yellen quote that “price equity ratios and other measures (of stock, bond, and real estate valuation) are not outside historic norms,” I thought I’d do a bit of thought-streaming – starting with what an “historical norm” refers to.
Since this blog focuses principally on financial topics – and specifically, money – “historical” can refer to trends going back to the dawn of man. As a leading Precious Metals purveyor, Miles Franklin has been writing of “money” for 25 years; and if we had been around 250 years – or 2,500 – our commentary would likely be similar. After all, only Precious Metals have defined “money” throughout history – in not only serving as a universal medium of exchange, but time-honored store of value. To wit, I have highlighted countless literary references to gold and silver throughout the years, which are as ubiquitous as the Federal Reserve’s meddling in financial markets. For example, here’s what I read this morning in James Michener’s Covenant, about colonial settlers in South Africa, circa 1838.
“The English had recently introduced their own monetary system, thinking to replace the Dutch one everyone used, and de Groot had some of the crisp notes. When he handed his offering to Retief the latter took it, held it in two hands, and allowed the sun to play upon it. ‘I do not like this money,’ he said.”
“Historical norms” can refer to much shorter periods as well, such as the 43 years since the world abandoned the gold standard. Back then, my father supported a family of four with a fulfilling middle class lifestyle on a $30,000 salary, and the (honestly calculated) national debt was just $390 billion, or 7% of (honestly calculated) GDP. FYI, I was born in 1970, so we’re not talking about the Stone Age.
Today, the national debt is $17.6 trillion, or $22+ trillion including “off balance sheet” items, and perhaps $200 trillion when incorporating “unfunded liabilities.” Take your pick of what GDP really is, given its definition has been “adjusted” as many times as the equally fraudulent inflation metrics that “deflate” it. Regarding inflation, even government “massaging” hasn’t prevented the CPI from rising at more than 4% annually since 1971, versus a measly 1% in the prior five decades. Of course, if one were to use a real inflation measure, the post-1971 increase is far closer to 7%-8% annually; which is probably why median real income peaked in – yep, you guessed it – 1972. By the way, in today’s inflation-terrorized world, said $30,000 salary is barely above the $24,000 level officially recognized as the “poverty line” for a family of four.
Regarding the U.S. economy in general, it’s no secret that a combination of outsourcing, global competition, and suicidal fiscal, economic, and trade policies have reduced it to a shell of what it was once was; thus, guaranteeing the end of the “reserve currency” status ceded to the dollar in 1944. Decidedly, these changes are secular by nature; and thus, have no chance of reversing. Amongst them, the nation faces an exploding “job glut”; as not only have the high-paying, benefits eligible full-time jobs that built America permanently left, but surging population growth has “set in stone” a socialist/fascist nightmare that will eventually turn communist. How long will the dollar hold any semblance of its current “purchasing power” under these conditions? Who knows, but our guess is far less than most can imagine.
Essentially all new “jobs” are of the part-time, temp, or minimum wage persuasion – with not a chance in hell of ever paying benefits. But don’t worry, the BLS says all jobs are equally, be they full-time, part-time, or phantom, care of the “birth/death” model and other “adjustments.” To wit, neither I nor my wife, who in previous lifetimes worked in the 20th Century American corporate juggernaut, have had company-paid health insurance for the past decade; and between the dying economy and the death blow that is Obamacare, I’d be surprised if we ever do. Meanwhile, privately offered healthcare premiums are rising faster than any cost segment of American society; and no, it’s NOT solely due to socialism. Runaway inflation of property/plant/equipment costs; surging malpractice insurance claims; untenable medical regulations; and exploding college and medical school tuition have driven healthcare rates into the stratosphere; and trust us, they’re only getting started.
To wit, news today that Microsoft, one of the nation’s largest employers, is laying off a whopping 18,000 workers – which no doubt, received well above average pay and the best benefits package imaginable. Simultaneously, a “seasonal adjustment” on the “island of lies” where economic data is formulated enabled a 47,000 real increase in jobless claims to become a 5,000 claim decline. That said, we recently, amply demonstrated that “jobless claims” not only have ZERO correlation with general labor market health; but ironically, a negative correlation since TPTB commenced history’s largest “can-kicking” exercise after the financial system permanently broke in 2008. And oh yeah, simultaneous with the release of said fake jobs data, the real state of the U.S. housing “recovery” was revealed – as June housing starts plunged 15%, and permits had their biggest two-month collapse since the 2008 economic meltdown.
To give you some real-world examples of what I’m speaking of, home prices in my neighborhood in the Denver/Boulder suburbs – which, by the way, is one of the nation’s fastest-growing regions – are significantly lower than the “echo-bubble” peak last summer. Back in my ‘hood of Long Island, New York, where I spent the large majority of my life, a close friend in the construction business told me last night he is having the worst year of the 20 he has been in business. His segment is equally tied to consumer discretionary and corporate spending; and by the way, he could not be more vehement that it has nothing to do with “the weather.” And finally, here in Colorado, I have a friend that works for a major, public corporation in one of the most recession-resistant businesses imaginable – discount child care. Given she works a nearly full-time schedule, I speculated that she was paid well, with those all-important, seemingly mythical benefits. Well, guess what? She makes the minimum wage, with not a chance to ever see benefits. And did I mention that the state of Colorado, per what we wrote in last week’s “state of the world, in one horrifying chart,” is doing so poorly, that despite its “surging” marijuana tax revenues, can’t even afford to process tax receipts in a timely fashion. No, I’m not speaking of refunds, but receipts! To wit, the “historical norms” that will be described when people write of the current era.
Back to Whirlybird Janet’s comments, let me start by asking the “pink elephant” question that is, “what’s a price-equity ratio?” I am a CFA with 15 years of Wall Street experience, and 25 as a financial market expert; and thus, it disturbs me greatly that the nation’s “Chief Financial Officer” – with not a day of practical market experience on her resume – describes market “valuation” with non-existent metrics. That said, the real issue is that the Fed has created history’s largest financial bubble – exceeding only the ones it, too, fostered in 1999 and 2007 – and believes “jawboning” will be an effective tool to deflate it. Back in 1980, it was possible to actually do something about spiraling financial issues – such as when Paul Volcker dramatically raised interest rates. However, given the recent explosion in debt, inflation, and joblessness, today’s situation is the polar opposite; and thus, no matter what the Fed says, it is a fait accompli that “QE to Infinity” will not only continue covertly, but eventually – when the next crisis inevitably hits – overtly. We weren’t kidding when we last month wrote of “Yellen’s Last Stand”; as in our view, it won’t be long before this historic inflection point arrives at American shores like a Cat-5 hurricane.
In our view, yesterday’s pathetic Fed comments – which, by the way, were a rehash of what they unsuccessfully “communicated” a month ago – were a last ditch effort to prevent gold from permanently establishing a “floor” at the round number of $1,300/oz (above its 50 and 200 day moving averages at roughly $1,290), and prevent the all-important benchmark 10-year Treasury yield from permanently establishing a “ceiling” at the 2.6% level we deem the “most damning proof yet of QE failure.” Comically, they were delivered by Dallas Fed President Richard Fisher; who, like the last month’s “token hawk,” Philadelphia Fed President Charles Plosser, will “conveniently” be rotated off the FOMC’s voting committee in 2015, leaving the only notable “hawk” to be Richmond Fed President Jeffrey Lacker – who just last week, said “a sustained acceleration of GDP growth to over 3% in the near future is unlikely.”
As I write Thursday morning, gold has fought through two days of maniacal “caps and attacks” to rise back to $1,304; whilst the 10-year Treasury rate, at 2.54% when said jawboning commenced yesterday afternoon, is back down to 2.50%, notwithstanding the “bullish” jobless claims number, and “ecstatic” Philly Fed diffusion index. Such “undesirable” market action threatens to derail TPTB’s “best laid plans,” but in both cases, they will miserably fail; and if Jim Sinclair is right, will do so now. Here at the Miles Franklin Blog, we have no idea if the “end game” commences this Fall, per Sinclair’s expectation of a “major attack on U.S. dollar hegemony”; as even if it doesn’t, the Day of Reckoning is coming, sooner rather than later.