Last week, we opined that the pathetically disjointed, blindingly dovish FOMC statement represented “Yellen’s Last Stand.” In other words, any shard of remaining Fed credibility is on the line, as the era of belief/hope in economic “recovery” is near its end. Given record low real employment, surging debt and inflation, historic lows in Congressional and MSM trust; and the below, historic plunge in CNBC’s ratings, the average person is already wise to such propaganda. And thus, it’s just a matter of time before the money printing “leg of the stool” is exponentially overtly increased; which inevitably, will yield catastrophic real losses to government-supported financial assets like stocks and bonds – either via 2008-style crash or 1920’s style Weimar hyperinflation.
Since Wednesday afternoon’s fateful FOMC statement, Fed governors have made it painfully clear they are nothing but a bunch of Keystone Kops – deficient in economics, propaganda and general social skills. In other words, sliding down the slippery slope of credibility as if it’s covered with engine grease. However, nothing compares to the lunacy witnessed yesterday; and following this morning’s catastrophic economic data releases, we wouldn’t be surprised if Jim Sinclair’s forecast – discussed yesterday – of a major challenge to dollar hegemony by year-end, and exploding gold and silver prices –plays out as he anticipates.
Today’s article is going to be written chronologically like a bad “B” movie. It’s the best way to get our point across and well worth waiting for the ending. Too bad it’s not an actual Looney Toons feature yielding the polar opposite emotion of the somber, ominous message of this “creature feature.”
As preliminary commentary, recall our incessant discussion of how the real economy differs wildly from the fake one purported by artificial statistics like “birth/death” influenced jobs, “seasonally adjusted inconsequential series like “weekly jobless claims,” arbitrary, statistically insignificant “diffusion indices” and biased, rigged surveys like government-published “consumer confidence.” Not to mention, the historic unprecedented gap between economic data – real, fake or otherwise – and government supported financial markets. Last week’s news that a whopping 50% of all global equities have been acquired by Central banks is perhaps the scariest most ominous fact we have ever learned; as clearly, the world’s largest investment pools are being herded into history’s biggest Ponzi scheme – amidst its terminal phase. Just yesterday, for instance, we learned that the Japanese government pension fund and Norwegian sovereign wealth fund are plunging headlong into equities; and thus, it can’t be long before said catastrophic real losses swamp the planet like a tsunami.
Back to the “economy,” we were told Monday that the PMI Manufacturing diffusion index “surged” in May; and yesterday, consumer confidence unexpectedly jumped as well. Never mind that such data makes no sense in the slightest, given horrific global economic indicators like the Baltic Dry Index (down 60% this year alone to nearly its all-time low). Let alone, the highest summer energy prices since 2008; which based on expanding conflicts in both Iraq and Ukraine threaten to explode – and rocketing costs of “need versus want” items from food to healthcare, insurance and college tuition. Here in the “recovering” States, we have the lowest Labor Participation Rate in 35 years, record entitlements enrollment, and nearly non-existent savings as citizen’s lever up to the hilt just to pay their monthly bills. And oh yeah, contrary to the government-published consumer confidence survey, privately-published Gallup data depicted the lowest economic confidence of the year, particularly in the key 35 and under consumer segment. And by the way, note how – even at its “best” reading economic confidence hasn’t come close to positive territory during this “year of recovery.”
Better yet, we were told home sales rocketed in May despite the fact that mortgage purchase applications remained at 19-year lows, and the Case-Shiller and FHFA home price indices rolled over in posting flat results versus expectations of significant increases. Of course, as we discussed yesterday, the only segment actually experiencing significant sales and price growth are $1+ million homes owned by “the 1%” receiving free Fed money; which, as you can see by the ominous chart below of the San Francisco market appears to be rolling over itself.
Right after the meaningless at worst fraudulent housing data, stocks surged higher with the VIX volatility index nearly touching an all-time low – as the “giant sucking sound” we warned of last week became deafening. That said, isn’t it ironic that “fear indices” – based on option premiums paid to protect portfolios – hit all-time highs at that very moment?
With precision – and by now, blatantly transparent – timing, “token hawk” Charles Plosser of the Philadelphia Fed was trotted out to ambiguously hint of the potential for “sooner than expected” rate increases, whatever that means. First, he flat out lied by saying “current data suggests economic strength is fairly broad-based”; and then, planted said ambiguity with the utterly meaningless statement “we may have to adjust our communications in the not-too-distant future, as our forward guidance may be too passive.”
On queue, the two-year Treasury note auction was extremely weak; according to the hopelessly misguided MSM, due to expectations of higher short-term rates given Plosser’s comments. The true reason, of course, is the Fed controls every aspect of such auctions – from takedown to pricing, to bidding data. In fact, the orchestrated takedown of the “Dow Jones Propaganda Average” – as usual, to exactly the PPT’s “ultimate limit down” level of -1.0% – coincided with plunging long-term interest rates with the benchmark 10-year yield falling from 2.63% to just below the 2.6% “line in the sand” we have incessantly written of. No doubt, said stock “plunge” was simply the Fed’s way of creating fear of the end of QE, so it can eventually generate “relief” when it inevitably changes its mind. Precious Metals, of course, were blatantly capped for the third straight day (following Thursday’s massive up leg); and as you can see below, the Cartel yet again naked shorted mining shares into oblivion in their quest of quashing any burgeoning PM momentum.
Per yesterday’s Charles Hughes-Smith article, the Fed faces the ultimate “Hobson’s Choice” – of either “ending QE/ZIRP or destabilizing the dollar & Treasury Market.” This is why it goes to so much effort – legal and illegal – to manipulate markets and proffer propaganda regarding its intentions. They couldn’t care less that their actions have created massive capital dislocations, unpayable debt accumulation, historic global inflation and unrest, and unprecedented soon-to-be-catastrophic financial bubbles. Conversely, their goal is to simply survive each day, hoping and praying the impossible will occur – i.e., the usurping of “Economic Mother Nature.”
This is why yes-men like Charles Plosser are trotted out to be ambiguously “hawkish,” yet pulled off the voting committee before they can actually act hawkish. And why, following such “horrible” market action like a piddling 120-point Dow decline “doves” like New York Fed President – and former Goldman Sachs Chief Economist – Bill Dudley are trotted out to give polar opposite sound bites; as he did last night, in stating “market expectations are that the Fed will start to raise short-term interest rates around the middle of 2015. That sounds like a reasonable forecast; but as you know, forecasts often go astray.”Ritholtz.com
And finally, the denouement following the second straight night of vicious, blatantly obvious Cartel raids; i.e., today’s combination of real and fake economic data releases. First up, the “PMI Services” diffusion index – which predictably “surged” higher in May. However, when real data was published – that is before fake inflation data was applied to goose it up – the true state of the economy and the Fed’s “success” was revealed.
To start, durable goods orders plunged by another 1.0% – demonstrating how real orders are one thing, and “diffusion index orders” another. And then, for the coup de grace, the final 1Q GDP revision was published. Recall, initial estimates were for +3.0% growth, but supposedly due to “the weather” – which we soundly disproved four months back – actual growth turned out to be -1.0%. Recent horrific plunges in the current account and trade deficit caused “analyst estimates” for the final revision to be -1.8%; but lo and behold, it turned out to be a horrifying -2.9%.
Promptly, Treasury yields plunged to nearly the year’s lows with the benchmark 10-year yield at 2.53% as I speak. However, have no fear, as the PPT has stocks higher on this news – which best interpreted screams “QE to Infinity.” And don’t worry, the Cartel is on the job as well – for the fourth straight day preventing gold from rising above its current “line in the sand” at $1,320/oz.; in this case, via prototypical “Cartel Herald” algorithm when the GDP data was released minutes after the COMEX opening.
Best yet in today’s version of “Fed follies,” Wall Street “analysts” anticipate the best earnings growth in the year’s second half will be in – drumroll please – the financial sector. Yes, we’re supposed to believe speculation machines – filled to the gills with bonds at record low yields, and highly interest rate sensitive stocks – can “outperform” during a period of supposedly rising rates! That said, the very “TBTF” banks expected to generate such “growth” own both the Fed and the government; and thus, the only way they can meet such “expectations” is to manipulate markets against a rising powerful tide – as noted earlier, of potential tsunami strength.
Hopefully, today’s tale of Fed lunacy helps you realize just how close the END GAME has come; as very likely, 2014 won’t pass without the entire world realizing the Fed – and other major Central banks – are as desperate as they are clueless. The “final currency war” – including further expansions of Japanese Abenomics, Chinese Yuan devaluation and ECB negative rates – will accelerate with the collapse of global economic activity; and with it, the universal understanding that worldwide “QE to Infinity” is not just a possibility, but a guarantee. When this historic inflection point arrives, if you haven’t already protected your net worth with precious metals it will probably be too late!