Sometimes it’s difficult to focus on one particular topic; as oftentimes, the noise surrounding HISTORIC efforts to distract the masses from reality is deafening. Case in point – this morning’s announcement that Goldman Sachs will join fellow world-destroyer JP Morgan in the Dow Jones Industrial Average; with CNBC trotting two of the most despised people on the planet, Sandy Weill and Jim Cramer, to discuss such an “important” move – is enough to make one lose one’s lunch. Let alone, that JP Morgan now has a “war chest” of $500 billion to manipulate markets with – care of the economy-destroying ZIRP and QE programs that funnel taxpayer money into “TBTF” banks; leaving the rest of us with nothing but inflation and under-employment. I guess the “good news” is that losers like Bank of America will be leaving the vaunted Dow, in yet another example of the “survivor bias” that misleads investors regarding the true progress of the world’s most widely-watched stock index.
I could literally write of a dozen “horrible headlines” this morning; but what struck me as most “stand-alone worthy” was a comment by one of the FOMC’s most dovish members; John Williams of the San Francisco Fed. Sadly, this relatively common name is sullying the reputation of the greatest movie score writer of all time (having written the theme music for Jaws, Star Wars, Superman, Close Encounters, Raiders of the Lost Ark, and Jurassic Park); and ironically, the economic TRUTH seeker behind the fabulous Shadow Stats website.
Per the title of today’s piece, the topic is asset bubbles. And what John Williams said – amazingly – is that not only are asset bubbles “unintended results” of monetary policy, but a “consequence of human nature.” In other words, he admitted the Fed causes bubbles; and worse yet, said they have no choice – as after all, Fed Presidents are only human! Concluding Williams’ lunacy – which sadly, courses through the veins of ALL Central bankers; he claimed bubbles are “here to stay” – thus, promising additional, tragic market dislocations as the ongoing, terminal economic tragedy approaches its denouement.
Sadly, guys like Williams are so brainwashed by the power and prestige of being Central bankers, they fail to see that they themselves are the true cause of asset bubbles – as they have been throughout all recorded history. Human DNA may in fact possess the “gene” for speculation; but as for blowing asset bubbles, I’d argue the human genome is more apt to “flight” than “fight.”
With the exception of the strange but true “Tulipmania” bubble in mid-17th century Holland, all famous asset bubbles are rooted from a combination of catastrophic government intervention and reckless fiat monetary policy. Simply go down the list, and you’ll see what I mean; starting with the French Mississippi bubble of 1719-20 and its “sister,” the British South Seas Bubble of 1720. In both cases, impromptu “central banks” were created to purchase hopeless government bonds – under the premise that “freeing” toxic bondholders would reinvigorate the economy (sound familiar?). All that such actions caused were massive bubbles in the then publicly-traded Central banks – i.e, the Mississippi and South Seas Companies – which ultimately crashed spectacularly.
Then you have the “Roaring Twenties” here in the States; which – what a surprise – commenced immediately after the Fed was created in 1913. In other words, it wasn’t “human nature” that caused the 1929 crash; but excessive, unregulated bank credit by a de facto government agency. And ditto with the Japanese and U.S. stock crashes of 1989 and 2000, respectively; in both cases, combining excessively easy monetary policy with radical financial sector deregulation. And wouldn’t you know it, both crashes occurred directly after Greenspan became Fed chairman in 1987; at which point, he dramatically eased monetary policy in “response” to the 1987 stock market crash.
Today, of course, we are talking about a completely different animal; as now that 42 years of global fiat currency debasement have reached the final, catastrophic stage of “Diminishing Returns,” ALL Central banks are desperately attempting to “reflate” their economies via MONEY PRINTING. In fact, the situation has become so dire, that many – particularly the U.S. – also utilize MARKET MANIPULATION and PROPAGANDA to “ensure” public support for their policies. And if that doesn’t work, just make up geopolitical crises to get the war drums beating!
At this point, it is difficult to argue ANY financial markets remain “freely-traded.” Moreover, such government support may appear relatively opaque in some cases; but in others – such as the Fed’s “QE4” policy – it couldn’t be more transparent. As I discussed ad nauseum last week, ALL global currencies are rapidly declining; and for those nations with the worst “banana republic” characteristics, the resulting asset bubbles border on comical. Venezuela, for instance, is experiencing 40% annual inflation (if you believe government reports) due to unfettered MONEY PRINTING – yielding electricity shutdowns and toilet paper shortages in the process. Yet, just as in Weimar Germany, the Caracas stock index has been on fire, up more than 200% in 2013, and 2,700% since the first official Bolivar devaluation in 2010! As in the U.S., very few retail investors own stocks in Venezuela to start with; but worse yet, even the recent equity surge doesn’t compensate for the loss of purchasing power inflation has cumulatively caused. Remember, the Bolivar has already been devalued by 65% since 2010; and based on what the stock market is “saying,” that figure may well reach 100% in the not-too-distant future. And don’t forget that other, non-“Third World” nations are taking the same “go for broke” MONEY PRINTING approach; most notably, in Japan.
Source: Zero Hedge
Importantly, we cannot fail to recognize that ALL the aforementioned bubbles primarily involved equities; as no prior period was subject to the MASSIVE, GLOBAL fiat currency contagion as is the case today. Sure, one could describe the late 80s Japanese and late 90s U.S. equity bubbles as similar to today – in that all global currencies were unbacked during those periods as well. However, it wasn’t until 2008 that this “fatal flaw” was exposed – via recognition of massive, uncontrollable debt edifices; and thus, such a comparison is unwarranted.
Today, the GLOBAL FIAT PONZI SCHEME in its final, fatal stage; and consequently, nearly ALL entities – from individuals, to corporations, municipalities, and sovereign nations – have passed the “point of no return” regarding their collective ability to pay down debt. Consequently, not only must equity markets be “goosed” to instill confidence in dying economies, but fixed income, currency, and real estate markets as well; while conversely, suppressing the prices of key commodities like crude oil and gold. Heck, since “The Final Currency War” commenced circa 2011, many governments actually weaken their currencies to achieve the desired “confidence!”
Unfortunately, not all such actions are working as intended – despite being pervasive as the daily sunrise. And even the ones that do appear to “work” – like the current PAPER PM price suppression; have catastrophic, unintended consequences – like the current, worldwide drain of PHYSICAL inventories, and anticipated collapse of future gold and silver production.
In other words, not only are such bubbles solely the result of government monetary – and regulatory – intervention, but have been “virally” transmitted across ALL financial markets. “Human nature” has not a whit to do with what the Fed, ECB, BOJ, and other Central banks have created; and when the END GAME of global currency collapse accelerates like a wildfire in the desert, the only human nature we will witness will be the all-out fleeing from worthless PAPER securities – particularly sovereign and municipal bonds. And oh yeah, an equally intense stampede into the ONLY assets capable of maintaining value in a fiat world gone mad; i.e., PHYSICAL gold and silver.
Off Topic – Those Darned “Diffusion Indices” Again
Yes, my favorite of all the government data frauds; so-called “diffusion indices” that attempt to measure massive economies via ambiguous surveys of a mere handful of businesses and consumers. I have long railed as to how limited their “predictive ability” is; let alone, when managed by government entities with political agendas. The ISM and PMI indices, for example, are particularly notable for their volatility and lack of predictive ability. Yet, the MSM and PPT regularly utilize them as “cover” to effectuate the PROPAGANDA and MARKET MANIPULATION in their 24/7 effort to influence public perception.
This year alone, we have seen enormous peaks and valleys in such indices; in some cases, well above and below the “50” level supposedly indicating the difference between economic expansion and contraction. And not just in the U.S., but worldwide; starting with China, whose National Bureau of Statistics admitted two weeks ago that, in regards to its PMI calculations, it “can’t ensure all industry-specific data can reach accuracy requirements.” Heck, just yesterday the “vampire squid” itself – Goldman Sachs – suggested European PMI data is no longer reliable in measuring economic trends! Which is probably why Draghi himself last week stated – despite recent PMI readings above 50 – that more downside exists in current European economic forecasts than upside; whilst ECB governors like Joerg Asmussen are publicly pleading with the Fed to reconsider thoughts of near-term QE “tapering.”
This morning depicts a perfect case in point of the difference between “hard” economic data and the “soft” PMI data that measures but a handful of opinions; or, for that matter, the difference between “hard” U.S. employment data and the silly NFP and “jobless claims” figures purported by the BLS. In Europe, Italy and France published abysmal GDP and industrial production reports, respectively; completely contrary to the supposed “recoveries” purported by their respective PMIs. Solidifying this point, Italian sovereign yield spreads subsequently widened to a greater level than even Spanish spreads – depicting just how dire the Italian economic landscape has become. Meanwhile, the lesser known JOLTS – or Job Openings and Labor Turnover Survey was published in the U.S.; validating EXACTLY what I have been stating about the morbid U.S. jobs market, by plunging more than 6% in July alone. Combined with Friday’s punk NFP report – particularly when its miserable internals are scrutinized – the picture of an abhorrent U.S. job market emerges; as opposed to the universal PROPAGANDA of unending “recovery.”