The Winklevoss twins believe Bitcoin should be worth $400 billion, going so far as to call it “gold 2.0.” Conversely, Peter Schiff deems it “Tulip mania II,” referring to the rank speculation occurring under the guise of a structural change in monetary perception. After watching it rise fivefold in two weeks, then crash 45% last night in three hours, debate on this topic will continue into the foreseeable future. As for me, I two weeks ago said that no matter what Bitcoin trades at, it will never have the monetary properties that have sustained gold and silver demand through six millennia. And therefore, as the Bitcoin hype reaches a fever pitch, I can only warn you to be extremely careful. It may be a brand new technology; but like fiat currency, is “digitally printed” out of thin air; and moreover, depends heavily on whether the Chinese government accepts it.
That said the fact that Bitcoin is breaking out – quite obviously, in un-manipulated fashion; speaks volumes of the emerging mindset regarding fiat currency; as ultimately, Bitcoin is a “play” on rejection of the dollar, euro, yen – and 179 other intrinsically empty mediums of exchange. The reasons for fiat skepticism are myriad; and if history even “rhymes,” guaranteed to be repeated. To wit, in observing the extreme speculation overtaking financial markets, I feel awed by the pending financial catastrophe the Fed has spearheaded. Even Larry Summers advocated NIRP at a speech this weekend – i.e., Negative Interest Rate Policy; and compared to Summers, Janet Yellen is vastly more dovish, per the below headlines, hot off the presses…
After five years of maniacal money printing and monetization, the “only chart that matters” depicts a Fed desperate to kick the can the extra mile. In expanding its balance sheet fivefold since 2008, it has simply caused America’s debt load to explode; while in the process, destroying investment capital, exporting inflation, creating historic wealth inequality, weakening the economy, and last but not least, fostering the most rampant speculation since 1999; not to mention, the same shoddy lending practices that led to the 2008 crisis.
Per these graphs, the real U.S. economy is in steep decline; as validated by this survey depicting how one-third of all major cities anticipate flat or weaker economic growth. In fact, just 14% of all global companies plan on hiring new employees in 2014; as the same issues crippling America are affecting the entire world.
Today alone, we saw dire earnings outlooks from bellwether retailers Best Buy and Campbell’s Soup; and in fact, the third quarter earnings season has been one of the worst ever, with the proportion of companies reducing earnings expectations at its highest level on record. And thus, it should be no surprise that survey after survey forecasts abysmal holiday sales; again, to levels last experienced at the height of the 2008-09 crisis. Heck, Walmart is initiating a food drive for its own employees in Ohio; and if that doesn’t depict just how badly the average American is faring, nothing will.
Historically, the government response to hopeless economic situations has always been the same; particularly when unfettered by real money. That is, deploying epic levels of money printing, market manipulation, and propaganda. For example, most readers are aware that the BEA, or Bureau of Economic Analysis, recently “rejiggered” U.S. GDP calculations to make the economy look $500 billion larger. The methods used were shallow at best, but the BEA correctly assumed no one would pay attention to the details. And thus, it should be no surprise that today, it was announced that China plans on doing the exact same thing – as worldwide, governments are doing everything in their power to obfuscate reality.
However, no one can manipulate data with the impunity of the U.S. government; and today’s bombshell report of a BEA whistleblower exposes such activities front and center. To wit, I’m sure you remember the incredulous September 2012 NFP report – you know, the last one published before the Presidential election. Incorporating some of the most questionable data on record, it enabled the “unemployment rate” to miraculously fall 0.1% below the level it was at when Obama took office. At the time, Jack Welch – among others – said the Obama Administration was “cooking the books”; and now, it turns he was right. According to this article from Jon Crudele of the NY Post, BEA contractor Julius Buckmon was ordered to fabricate jobs; thus, dealing a critical blow to those that still believe economic data (and for that matter, financial markets) are not manipulated.
On that note, let’s go back to the “only chart that matters” – in our search for the likely conclusion to the ongoing, global economic calamity. At this point, so much money has been printed – worldwide – that frankly, it matters not if another dollar, euro, or yen is ever created again. In other words, the damage has already been done, and the “point of no return” long ago passed. That said it needs to be pointed out just how egregious official efforts have been to mask reality this year; which in my view, will be viewed as an historical inflection point in TPTB’s war against real money. And by inflection point, I mean the end of their ability to influence perception by manipulating markets.
To that point, below is a chart overlaying the S&P 500 with the size of the Fed’s balance sheet. As you can see, since the post-Global Meltdown I money printing frenzy, the correlation has been an astounding 90%. Using the obscure r-squared statistical measure – i.e., the coefficient of determination – more than 80% of all S&P 500 movement over the past four years is directly attributed to Federal Reserve asset monetization. In other words, buying toxic assets from banks, which in turn deploy such capital to the markets?
Essentially, the Fed created the current equity bubble all by itself; although rest assured, it had plenty of aid from the President’s Working Group on Financial Markets. Not only are U.S. equities up 20%-30% this year – amidst the worst financial and economic fundamentals in generations – but the Dow has only had one 2% down day all year – and that, on June 19th, just after the FOMC initially hinted at QE “tapering.” Frankly, I wouldn’t be surprised if that downside move wasn’t orchestrated as well; you know, to “scare” the Fed from further taper talk.
From the get-go, the Fed’s goal has been to reduce nominal interest rates to record low levels; in it, an amazing accomplishment given surging inflation and record debt. And until recently, their plan was working, as the correlation between the Fed’s Treasury holdings and the 10-year Treasury yield was nearly perfect. In other words, until the Fed started to lose control following its ill-advised “taper” comment in June, this correlation was a whopping 94%. In other words, it was even higher than the correlation between its balance sheet and the S&P 500.
I could take up several pages posting charts depicting correlations between the Fed’s balance sheet and various financial market parameters. However, in the interest of brevity, let me simply say, there are many. In fact, the prices of gold and silver have been particularly heavily correlated to the Fed’s activity, which makes this year’s suppression that much more blatant. Below, for instance, is an overlay of the U.S. debt limit versus gold; which until April’s “Alternative Currencies Destruction,” had a 98% correlation over the past 13 years. This by the way is not much different than the 94% correlation between gold and the Fed’s balance sheet over that period.
Bringing the point home – of just how blatant recent interventions have been – I present the defining, damning chart of what “markets” have done since the Fed announced QE3 and QE4 last fall. Yes, while the Dow has rocketed more than 30% higher – whilst worldwide economic activity has faltered significantly, per the dramatic table I published last week – gold has plunged more than 25%.
In due time, such “anomalistic” behaviors will return to the mean – and then some. TPTB may have won a temporary battle against the forces of economic and market reality, but such rear-guard actions increase the odds that the overarching war will not only be lost decisively, but much quicker than anticipated. In the case of gold and silver, the physical supply and demand responses have already been dramatic; and trust me, they will only become more so as this treacherous fiat game enters its terminal phase.
As far as I’m concerned, the only remaining question is how and when the end game starts; and given the enormous amount of “black swans” lurking around, nothing would surprise me at this point. Remember, when it finally commences, the odds are that your opportunity to protect financial assets with real money will have already passed. And thus, I suggest you take advantage of the opportunity to so before it’s too late.