When it comes to market manipulation, I’d argue that NO ONE has their finger pressed as firmly on its daily “pulse.” A handful of others may be tied with me on that count; but few – if any – spend as much time watching what TPTB are doing. The main driver of my obsession is to empower myself that I am doing the right thing; and of course, to transmit such knowledge to friends, family, colleagues, and readers. Consequently, we are better prepared to handle the upcoming financial Armageddon than more than 99% of the world’s population. The TRUTH shall certainly set us free; and in this case, it just may save our “financial lives.”
It’s still Tuesday morning, and Treasury bonds are higher in pre-market trading. In fact, they have been goosed higher EVERY morning since the 10-year yield briefly touched the VERY KEY ROUND NUMBER of 3.0% two weeks ago. In other words, the Fed’s “QE” activities have now escalated to levels of desperation akin to the PPT’s maniacal, daily support of the Dow and the Cartel’s relentless suppression of PAPER gold and silver. Heck, TPTB put on a “full-court press” yesterday; i.e., not only pushing T-bonds up sharply in pre-market trading, but recruiting every MSM lackey imaginable to write of how the withdrawal of “hawkish” Larry Summers was the primary factor behind the recent rate surge. Sadly, by day’s end Treasuries were routed; as has been the case in nearly ALL recent efforts to avert the inevitable end of the multi-decade bond bull market. And by the way, since I started writing just 30 minutes ago, Treasuries have already lost half their gains.
Anyhow, the reason I bring this up is to demonstrate that on the eve of the Fed’s inaugural “tapering” decision, they are working harder than EVER to push interest rates down. In other words, the polar opposite mindset of an organization comfortable with the current level – and trajectory – of the Treasury and mortgage bond markets. It doesn’t take a rocket scientist to realize the Fed desperately wants to avoid tapering; as it KNOWS it cannot do so, for reasons I have discussed ad nauseum. Ever since the Fed’s CATASTROPHIC decision on June 19th to hint that it “might” taper QE if economic data indicated sufficient upside momentum, essentially EVERY FOMC member has publicly back-tracked – including Helicopter Ben himself, just three weeks later.
The FACT remains that even the BEA (Bureau of Economic Analysis) admits that half of 1H 2013 GDP contribution emanated from the housing sector – or offshoots thereof; and thus, given both mortgage applications and refinancing activity have plummeted to mid-2009 levels, it’s safe to say that if accurately measured, 2H GDP would clearly depict recession – especially if REAL inflation data was utilized in the GDP “deflator”…
Irrespective of what accounting shenanigans are played by the BLS (Bureau of Labor Statistics), the fact remains that jobs are being shed, losses generated, and confidence weakened. You know it, they know it, and the collapsing Labor Participation Rate will surely reflect it. Throw in the fact that the Bank of International Settlements just warned that interest rate suppression has created credit excesses exceeding those of 2008, and you can see why the Fed is painted in a corner. If they taper – even mildly – they will be sending a signal of reduced support for a market already under tremendous pressure, with essentially ZERO buyers. Conversely, if they don’t, they’ll essentially admit to LYING – for the umpteenth time – about the mythical “recovery.” Call me crazy, but the potentially worst U.S. holiday shopping season since 2009 doesn’t suggest “recovery” to me; or, for that matter, a 23-year low in European car sales.
Back to the title of today’s article, the Fed’s eventual loss of control of financial markets is all but a fait accompli. As all fiat currency regimes are Ponzi Schemes by definition, it’s only a matter of time before this one implodes under its own weight; either due to its sheer unwieldiness, or a simple loss in the fragile “confidence” holding it up. I’d bet on the latter; but frankly, the two are so inter-related; it makes little difference either way. The FACT remains that all such systems – 599, to be exact – have previously failed; and given the current version is the largest and most vulnerable, it will likely crash the most loudly – and TRAGICALLY.
Ironically, the catalyst for today’s piece was none other than the Fed’s former “mouthpiece” – John Hilsenrath of the Wall Street Journal; who I deem the former mouthpiece because he has been so consistently WRONG in his prognostications, it’s difficult to believe anyone still takes him seriously. Sure, the Fed had him write several “HAIL MARY” articles in the final hour of weak trading days; but aside from that, his “knowledge” of upcoming Fed action has been no better than the flip of a coin. In other words, if the topic were “FOMC decisions,” I’m not sure he could even win on Are You Smarter than a Fifth Grader?”
However, now that he has clearly cut most of his “cord” with the Fed, he is not only showing signs of intelligence; but perhaps, vengeance toward an organization that clearly used him, before throwing him out like smelly trash. There is no doubting his skepticism in this article; in which he highlights the paradox that is the Fed’s comical attempt to convince the masses that a significant, sustainable “recovery” on the horizon – as they have erroneously forecast for the past five years; and that accompanying it – amidst the world’s most catastrophic debt and inflation problems EVER – will be record low interest rates!
Even the dumbed-down, bought-and-paid-for MSM has difficulty justifying the paradox that is historically low interest rates and the “SO-CALLED RECOVERY” that has stock indices trading at record nominal highs. And spinning a yarn of “low inflation” is as dis in genuine as it is moronic; as the U.S. cost of living has NEVER been higher, while around the world, Fed-exported inflation is causing currency collapses, social unrest, and civil war. Even the most “patriotic” Americans no longer believe government-published inflation or employment data; and thus, the heavily discredited – and despised – Fed will have an even more difficult time convincing the masses it has the situation under control.
For some time now, I have incessantly written of how higher rates – even marginally so – are NOT possible given the “IRREVERSIBLE, GLOBAL DEBT ADDICTION.” The recent implosion of housing, refinance, durable goods, retail sales, and consumer confidence data tell that story LOUD and CLEAR; and don’t forget that since such data was published, rates have gone still higher. However, equally ominous is the fact that higher rates render the odds of individual, corporate, municipal, and sovereign insolvency – and ultimately, bankruptcy – dramatically higher. Honestly, it’s just plain comical for the U.S. government – among others – to claim its account deficit is falling, when not only is overall economic activity slowing, but rates rising. For example, just the published $17 trillion of national debt requires an additional $170 billion in annual debt service costs for each 1% increase in interest rates. Throw in the $5 trillion of “off balance sheet” debt of Fannie Mae and Freddie Mac, and you’re up to $220 billion of incremental, annual interest costs; and god forbid one should consider the roughly $200 trillion of “unfunded liabilities.”
As it is, this year’s reported decline in the budget deficit is due principally to accounting shenanigans utilized to “delay” the debt ceiling breach into mid-October; which, when it finally occurs, should yield an instantaneous debt surge of perhaps $300 billion. And don’t forget the outrageous payment of “dividends” from Fannie and Freddie to the Federal government – which simply make these government-owned entities even more insolvent. In other words, “robbing Peter to pay Pau.” Moreover, now that the housing market has shifted into reverse, Fannie and Freddie’s supposed “profits” will rapidly turn to losses.
In other words, the Fed CANNOT afford to stop PRINTING MONEY and MONETIZING Treasury and mortgage-backed bonds. Even the slightest rate increase will torpedo any fleeting semblance of recovery; whilst a MAJOR rate surge would likely, instantaneously; send the ENTIRE WORLD into a 1930’s style depression. Only this time, without a gold standard to slow Central banks down, they’ll turn up the printing presses and launch history’s most virulent-ever HYPERINFLATION.
Darned if they do, darned if they don’t; and particularly darned if they attempt to be “cute” by announcing a “tiny taper” with accompanying, uber-dovish language – per Jim Sinclair’s sage words…
QE is a trap that once embarked upon cannot be stopped or even tapered. We are approaching the point of no return.
To taper QE will open the cracks that have begun to show in the bull bond market of generations.
To taper QE will turn business psychology as negative as indicators are now pointing.
To taper QE will end the bull market in equities.
The try and restart QE will be totally futile in terms of markets. The point of no return is the point of losing control of markets, from currency to equities. The point of no return could easily be any day now.
The biggest mistake of the moment is that to taper is a meaningless event.
–jsmineset.com, September 16, 2013
As he suggests – and I have averred for months, the Fed could lose control of its market-rigging operations ANY DAY now. The U.S. Treasury market holds the key to the ENTIRE GLOBAL ECONOMY; and if the Fed can’t miraculously find a way to turn it back up, the logical conclusion of economic collapse will be shortly behind. You can take it to your soon-to-be-insolvent bank!