Jerome Powell Confesses

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Heaven forfend — angels and ministers of grace defend us! — the chairman of the Federal Reserve has confessed the truth.

We write from our back today, floored, still unable to recover from the blow.

For yesterday the chairman ripped the central banker’s mask from his face, and let them have it straight in the eye… and right from the shoulder.

What mighty and stupendous truth did he uncage yesterday?

Patience, dear reader, patience. You must first suffer under today’s market notes…

Can’t Shake the Coronavirus

The stock market traded at record heights today. But the coronavirus struck again this afternoon. CNBC in summary:

Equities fell sharply to start off Thursday’s session after China said it confirmed 15,152 new cases and 254 additional deaths. That brings the country’s total death toll to 1,367 as the number of people infected jumped to nearly 60,000, according to the Chinese government.

The Dow Jones ended up losing 128 points by closing whistle, to 29,423.

The S&P lost five points on the day; the Nasdaq, 14.

Gold, meantime, gained $7.30 today to close at $1,579.20.

But to return to today’s thumping question…

What sublime truth did Jerome Powell let out yesterday?

Powell’s Monetary Policy Report to the Congress

Here is the setting:

The Dirksen Senate Office Building 538, Washington, D.C. The Banking Committee of the United States Senate is in session.

Addressing the committee is the Hon. Jerome H. Powell, chairman of the Board of Governors of the Federal Reserve System.

He is a man heavy with duties to the American republic…

He is delivering the semiannual Monetary Policy Report to the Congress, in fulfillment of his obligations under the Humphrey-Hawkins Full Employment Act of 1978.

It is late morning. Committee members fight valiantly to maintain consciousness, but sleep has vanquished several.

Chins rest upon chests, rising gently at longish intervals… as if buoys bobbing in lazy ocean swells.

Faint snores can be heard above Mr. Powell’s hypnotic droning.

One dreaming senator — we had best keep his identity dark — mutters something about “your sexy lips” and a name other than his wife’s.

A swift elbow from an adjacent senator nudges him awake.

But then — of a sudden — the truth came roaring from the chairman’s mouth like fire from the mouth of a cannon…

The Truth!

Out it came, knocking us flat in the process:

“Low rates are not really a choice anymore; they are a fact of reality.”

Low rates are not really a choice anymore; they are a fact of reality.

No more talk of “normalization.” No more whim-wham about “the outlook.” No more “monitoring conditions.”

Instead, low interest rates are no longer a choice. They are a “fact of reality.”

Poor Alan Greenspan would be spinning in his grave today — if only he had a grave to spin in. Old Alan yet lives and breathes.

But does Powell not realize that a central banker’s job is to dodge, to weave, to talk… but not say?

We can only speculate that the fellow was overtaken by a temporary delirium, a transient psychosis.

But Mr. Powell’s uncharacteristic outburst of honesty gives powerful, almost invincible confirmation of our deep belief…

Our belief that the Federal Reserve can never increase interest rates by any meaningful measure.

Higher Rates Would Collapse the Walls of Jericho

High interest rates — even historically normal interest rates — would bring down the very walls of Jericho.

The entire financial and economic system would come thundering down.

Please observe the chart below. It reveals that United States private financial assets — the stock market, essentially — presently rise to an obscene 5.6 times United States GDP.

And so it puts all existing records in the shade:

IMG 1

Shriek the doom mongers of Zero Hedge:

“Any sizable drop in the stock market would lead to an almost instantaneous depression.”

We fear they are correct.

The stock market and the decade-long economic “recovery” center upon ultra-low interest rates.

A meaningful rate increase means debt service becomes an impossible burden — a crushing burden.

But returning to Chairman Powell…

“We Will Have Less Room to Cut”

Our unlikely Job was not done yesterday. He confessed another truth:

“We will have less room to cut.”

The federal funds rate presently squats between 1.5% and 1.75%. But as we have noted often, the central bank requires rates between 4% and 5% to push back recession.

Should recession invade the United States tomorrow, the Federal Reserve would enter the combat at half-strength… or less.

Thus it plans to send additional quantitative easing and “forward guidance” hurtling against the onrushing enemy.

“We will use those tools,” Mr. Powell pledged yesterday. “I believe we will use them aggressively.”

We have no doubt they will. But we are not convinced they will irritate or bother the enemy.

The Federal Reserve’s balance sheet already stretches to emergency wartime levels. And each expansion packs less wallop than the previous.

How much remains?

The Point of Diminishing Returns

Even Powell’s deputy commander — Vice Chairman Richard Clarida — recognizes the limits:

The law of diminishing returns is a very powerful force in economics, and so we have to be concerned that it may also apply to quantitative easing.

What then of “forward guidance?” Is it formidable?

No, argues our own Jim Rickards. It is a mere popgun, firing a blank cartridge:

Forward guidance lacks credibility because the Fed’s forecast record is abysmal. I’ve counted at least 13 times when the Fed flip-flopped on policy because they couldn’t get the forecast right.

Thus the forked counterattack of quantitative easing and forward guidance may prove blunt in both prongs.

But might our central bank house another weapon to punch back? Yes, it might…

The Fed Looks to the Past

The chairman and his fellows may blow the dust off another anti-recession weapon — a weapon it has not employed in 69 years.

Reveals The Wall Street Journal:

As part of their contingency planning for the next recession, Federal Reserve officials are looking at a stimulus scheme the U.S. last used during and after World War II.

But what could it be?

From 1942 until 1951, the Fed capped yields on Treasury securities — first on short-term bills and later on longer-term bonds — to help finance war spending and the recovery.

Placing caps on Treasury yields. That is the anti-recession weapon under consideration.

This scheme involves intricacies far too subtle and delicate for our dull understanding.

We therefore enlist the Journal to help penetrate the mystery:

Yield caps would be a cousin to QE. In QE, the Fed committed to purchasing fixed amounts of long-term securities. With yield caps, by contrast, the Fed would commit to purchase unlimited amounts at a particular maturity to peg rates at the target.

The goals of either approach are similar: drive down longer-term interest rates to encourage new spending and investment by households and businesses…

Some officials think capping yields could deliver the same amount of stimulus while acquiring fewer securities than they did through their bond-buying programs from 2012 until 2014, when the Fed purchased more than $1.6 trillion in Treasury and mortgage securities.

Do you understand it now? Below you will find our email address. Please contact us at your earliest convenience. For we do not understand it.

Breaking the Invisible Hand of Capitalism

Yet of this we are certain:

Capping Treasury yields — whatever it is — represents a further warfare upon the free and open market, further violence against transparency and honesty.

It seizes Adam Smith’s invisible hand of capitalism… and snaps another finger in two. Few remain as is.

What is it then but a gloved admission — that all previous central bank offensives have failed in their aims?

That is, a concession that they have failed to yield a healthy, prosperous and sustainable economy.

Ten years of them and victory remains as elusive as ever before.

Yet to paraphrase the good Chairman Powell, they are now facts of reality. And they will remain facts of reality… until they are proven fictions of reality.

But this much we will say for the chairman:

He is finally honest about it…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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The Great War of Stocks and Bonds

This post The Great War of Stocks and Bonds appeared first on Daily Reckoning.

Two options rise before us this day…

Option 1: The stock market is right. Option 2: The bond market is right.

The stock market is cheery and confident. It presently goes at record heights… and bursts with belief in a superior tomorrow.

Moreover, it has a decade of nearly unbroken prosperity in back of it.

The bond market — meantime — is dark, dour, down in the mouth.

Today the 10-year Treasury yields a slender 1.59%.

But not 1.5 years ago, in October 2018, it yielded 3.16%. In general…

The 10-year Treasury yield sinks when markets anticipate economic weather ahead, subdued inflation… and lower animal spirits.

A lean season is ahead then, the bond market struggles to say above the dinning stock market.

Two Irreconcilable Views

Pit the one against the other, stock versus bond. No compromise, no truce, can sink their differences. They are too vast.

As well ask the respective lords of heaven and hell to sign a treaty of peace…

As well ask Hatfield and McCoy to share a kiss…

As well ask the two poles of Earth to join at the equator.

That is, as well request the impossible.

As economist David Rosenberg styles it:

Both bonds and stocks can’t be right at this moment in time. We have to choose which asset class has the story right…

Which asset class has the story right — stock or bond?

We bring a prejudiced opinion to the proceedings, you say. That is, we bring a prejudiced opinion against the stock market.

Yet today we blindfold our eyes, hold the scales of justice even… and grant each side an impartial hearing.

The stock market rises to read its opening statement…

Why Shouldn’t the Stock Market Be Setting Records?

It insists the facts justify its optimism in full.

It reminds the court that unemployment scarcely has existence, that real wages are increasing, that January manufacturing jumped, that productivity is on its legs again.

The stock market is simply a mirror of these fabulous facts, it insists.

We must concede, the evidence produced has anchors in truth…

Unemployment hovers near record depths, at 3.6%. And 2019 witnessed America’s greatest productivity gains since 2009.

What is more, real hourly wages (inflation-adjusted, that is) expanded last year at the greatest rate since 2015.

Meantime, the Institute for Supply Management claims its January index of American factory activity came in at 50.9 — up from December’s 47.8.

Any number above 50 indicates a manufacturing expansion, a blossoming.

But the bond market thunders to its feet, and files a blistering objection…

Don’t be Fooled!

Take unemployment, the bond market argues.

Set aside the fact the United States Bureau of Labor is an agency of torture — that it twists, contorts, batters and gouges the numbers into false confessions.

Accept the 3.6% unemployment rate as truth, the bond market allows in generosity.

Unemployment sagged below 4% in April 2000, it reminds us — at the peak of the dot-com derangement.

The economy was in recession by March 2001… less than one year later.

And prior to April 2000, unemployment last hung below 4% in December 1969.

What followed?

The economy dropped into recession that same month… where it remained until November 1970.

Be not deceived then by today’s gaudy unemployment figure. It gives a false confidence, argues the bond market.

With the serenity of a card sharp with an ace card up its shirtsleeve, this market then summons a certain Nicole Smith to the witness stand…

Damning Testimony

Ms. Smith is chief economist at Georgetown University’s Center on Education and the Workforce.

Under examination she reveals:

If we look historically at other times when the unemployment rate has fallen below 4%, it’s times where it was the boom phase just before recession or just after a major war period…

It’s almost a precursor for a recession or a precursor for another slumping economy.

We steal a furtive glance at the stock market. It is sunken in its chair, beads of perspiration forming about its forehead. It reaches for a glass of water.

But to proceed…

Next we come to the alleged productivity surge.

Less Than Meets the Eye

The bond market will allow that United States productivity expanded 1.8% last year. Yet it is eager to remind the court…

That productivity still runs substantially beneath the 2.1% average prevailing since the Second World War.

And that the current expansion’s annual productivity gains average a marginally productive 1.3%.

The bond market demands to see more before budging from its skepticism.

And manufacturing?

It concedes the January index broke above the critical 50 threshold.

But it reminds us that manufacturing was in actual recession for all 2019 — all of it, January–December.

It will not permit a random lurch in the chart to fox it, to trick it. Once again, the bond market insists upon further evidence.

The Bond Market’s Star Witness

Finally the bond market calls upon its star witness: the yield curve.

As we have explained before…

The yield curve is simply the difference between short-term and long-term interest rates.

Long-term rates normally run higher than short-term rates. That is because the long-term future holds less certainty than the short-term future.

Investors, as a result, demand greater compensation to hold a 10-year Treasury than a 3-month Treasury.

The 10-year yield should therefore run substantially higher.

But when the 3-month yield and the 10-year yield begin to converge… the yield curve flattens.

And a flattening yield curve is a possible omen of lean times.

But the true menace is when the yield curve inverts — when long-term yields actually slip beneath short-term yields..

An inverted yield curve is a nearly perfect fortune teller of recession. An inverted yield curve has preceded recession on seven out of seven occasions 50 years running.

Only once did it yell wolf — in the mid-1960s. And the yield curve is giving off another alarm.

“The U.S. Yield Curve Is Flirting with Another Broad-based Inversion”

Reports Bloomberg:

The U.S. yield curve is flirting with another broad-based inversion, reigniting Wall Street fears over the fate of the American economy… After a respite early last week, the curve is once again flattening, with the spread between yields on 3-month and 10-year Treasuries inverting once more on Monday. This followed an earlier inversion starting Jan. 30 that was caused by growing angst about the coronavirus and an equity sell-off.

Yet an inverted yield curve is not necessarily an immediate scourge. History reveals its dire effects may not manifest for 12–18 months — or longer.

The curve has inverted at various periods over the past two years, incidentally.

But the bond market rests its case. In summation, it argues the stock market gives a dreadfully inaccurate reading of economic health.

“Never Before Has There Been such a Loose Relationship to Economic Growth”

It cites the aforesaid David Rosenberg:

Never before has there been such a loose relationship to economic growth… this is a stock market that is being driven by flows rather than by economic fundamentals.

At this point we recall Mr. Rosenberg’s previous statement:

Both bonds and stocks can’t be right at this moment in time. We have to choose which asset class has the story right…

And which asset class has the story right, in his estimate?

“History sides with the Treasury market.”

A Ruling

We are forced to agree.

The bond market will let you know where the economy is heading, say the veterans.

New York Times economics reporter Neil Irwin:

Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.

We must rule, therefore, in favor of the bond market. The coronavirus only reinforces our judgment.

The stock market will naturally appeal its case to a higher court.

And yes — we freely concede — it may even win…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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A Flood of Good News

This post A Flood of Good News appeared first on Daily Reckoning.

What are we to make of all the good news? Good news?

We learn by the United States Department of Labor that Americans were 1.8% more productive in 2019 than in 2018.

Here we have the greatest annual productivity gain since 2009.

We learn further that Americans’ real hourly wages (inflation-adjusted, that is) expanded 1.9% last year — the highest rate since 2015.

Meantime, Gallup informs us 59% of Americans feel more financially flush this year than last.

That is a record figure… nosing out the previous 58% from January 1999.

And a record 74% of American adults expect next year will find them in easier waters yet.

74% eclipses the previous 71% high from 1998.

Thus the American outlook is bright… and the spirit of gain is on the stretch.

More Good News?

Now what is this? Yet another sunshaft cracks through the overcast…

China has announced — unexpectedly — that it will slash tariffs on $75 billion of United States exports. Some, reportedly, as much as 50%.

And whispers swirl that researchers are nearing an antidote to the coronavirus.

China announced it will begin an experimental trial of the drug remdesivir. The New England Journal of Medicine reports the drug may offer at least limited salvation.

Reports MarketPulse:

It seems the world is nearing a cure for the coronavirus and that could mean markets may only need to price in only one bad quarter of data for China.

Therefore:

… the playbook remains once Wall Street is beyond the virus [and] risky assets will remain supported on central bank stimulus and the global growth rebound story.

We should not be surprised then that the stock market had itself a day at the races yesterday…

The Bulls Are Back in Charge

The Dow Jones ran up nearly 500 points by the closing whistle. The S&P went on a similar spree.

Both indexes extended their gains today.

The Dow Jones added 89 points; the S&P, 11. The Nasdaq took on 63 points of its own.

Gushes analyst Adam Crisafulli:

The bullish narrative that’s been driving stocks since late 2019 is firmly back in control of the tape after taking a brief pause during the final days of January.

Just so.

But let us draw a thick gray cloud across the sky… and patch the widening gap in the overcast.

We begin with United States productivity…

Show Us More

Productivity may have expanded 1.8% last year. Yet one swallow does not a summer make… as the phrase runs.

Productivity still goes far beneath the 2.1% average prevailing since the Second World War.

And the current expansion’s annual productivity gains?

They average a slender 1.3% altogether — thin, thin gruel.

We demand to see far more. But we may not see more…

Business investment remains depressed. And absent a sustained upward pressure, we have little reason to expect additional productivity gains.

Explain the gentlemen and ladies of Oxford Economics:

Productivity growth reached its fastest pace since 2010 last year, but we do not believe such performance will be sustained given lower domestic and global growth prospects.

But what about China’s newfound receptiveness to American wares? Should that not fill the sails of growth… and elevate the global outlook?

Have another guess, says Northman Trader’s Sven Henrich…

The Coronavirus Could Cut 2% From Global GDP

Look to the coronavirus. Henrich says the decision is a mere expression of Chinese desperation:

How long before people realize that China proactively capitulating on tariffs is a sign of how serious the economic impact of this [corona]virus situation actually is?

There may be sound justice here.

Goldman Sachs estimates the coronavirus’ compounding effects may hatchet global GDP 2% this quarter.

Zero Hedge, in summary of Goldman:

According to Goldman’s chief economist Jan Hatzius, the assumed hit to Chinese growth will directly subtract about 1% from global GDP growth in Q1. In addition, spillover effects to the rest of the world will take just under 1% off global growth, for a total hit of nearly 2% in the first quarter. The spillover effects consist of reduced exports to China (worth about 0.3%) and reduced spending by Chinese tourists abroad (worth about 0.6%).

But since we are the very soul of fairness, we must report that Goldman’s crackerjacks expect a full recovery.

Global growth will attain 3.25% by year’s end, they project — exceling last year’s 3.1%.

But what if they are wrong? What if this coronavirus is not so easily caged, conquered or killed?

“We’re Shadow Boxing”

The director of the World Health Organization — a certain Dr. Tedros Adhanom Ghebreyesus — warns against excessive zeal.

Put aside all rumors, he appears to say. No effective vaccinations or treatments yet exist.

“To put it bluntly,” says he, “we’re shadow boxing.” More:

“We don’t properly understand its transmissibility or severity… We need to bring this virus out into the light so we can attack it properly.”

Meantime, evidence mounts that China is vastly underreporting corona’s viral reach…

Our agents — for example — report hospitals in Wuhan are packed to suffocation, bursting with victims.

Neil Ferguson, disease modeler at Imperial College London, supports their claim:

There are likely to be many times more cases in Wuhan than officially confirmed. Clearly, the hospitals are overwhelmed.

We further understand the body-burners are busy — our men report pillars of smoke billowing constantly from the local crematoria.

But we must concede, our information comes secondhand. We are unable to confirm it.

We can confirm, however, the galloping confidence of Americans referenced above…

Irrational Exuberance

Let us briefly revisit the details:

Gallup informs us 59% of Americans feel more financially flush this year than last.

That is a record figure… nosing out the previous 58% from January 1999.

And a record 74% of American adults expect next year will find them in easier waters yet.

Seventy-four percent eclipses the previous 71% high from 1998.

Have you noticed the dates when Americans were last so exuberant?

That is correct — 1998 and 1999. Do you recall the subsequent events of 2000–02?

That too is correct. And the Nasdaq absorbed an 80% trouncing as they unfolded.

We suspect markets are in for similar roughhouse in the not-distant future. Next year? Perhaps in 2022?

We have no answer of course.

Nature Abhors Extremes

But stock valuations presently rise to heights truly obscene, heights never before equalled by certain measures.

That is, stocks are more expensive than ever by certain measures.

Nature abhors a vacuum, it is said. But nature also abhors extremes.

We suspect nature will iron out today’s extremes… and with great gusto.

Unfortunately, it will flatten the 59% of Americans who feel flush with cash, the 74% of Americans expecting easy waters ahead.

Again, we cannot say when.

But remember — nature abhors extremes. Remember also:

Nature bats last…

Regards,

Brian Maher
Managing editor The Daily Reckoning

The post A Flood of Good News appeared first on Daily Reckoning.

Democrats in Disarray

This post Democrats in Disarray appeared first on Daily Reckoning.

President Trump delivered his State of the Union speech last night. He talked a lot about the booming economy and stock market, which are his main strengths heading into this year’s election.

The visuals said it all, as Republicans were on their feet cheering much of the night, while Democrats remained seated in obvious disgust.

House Speaker Nancy Pelosi provided the most dramatic theater of the night, ripping up her copy of the president’s speech in front of the nation.

The president didn’t mention impeachment. But he was acquitted in the Senate on both the abuse of power and the obstruction of Congress charges late this afternoon. The vote on the abuse of power charge was 52-48, with Mitt Romney being the only Republican to vote for conviction. The obstruction charge broke down 53-47.

The outcome was never in doubt, and is just another blow for Democrats. Trump has all the momentum right now.

Meanwhile, chaos in Monday’s Iowa caucus has further compounded the difficulties Democrats face in their efforts to defeat Trump in November. Much of the trouble in Iowa surrounded glitches with an app that was used to report the caucus results.

Many who downloaded the app to their smartphones received error messages or experienced difficulties in following its instructions. The party’s backup phone system  also reportedly failed, adding to the problems.

Widespread reporting issues resulted in mass confusion, leaving the ultimate winner still undecided.

In an early vote count, Bernie Sanders held a slight lead in the popular vote, with Pete Buttigieg leading in state delegates. As of early today, 71% of precincts have reported in. They show Buttigieg with 26.8% of state delegates, followed by Sanders, with 25.2%. Elizabeth Warren has 18.4%, with Joe Biden trailing at 15.4%.

The results are a big red flag for Biden, who fell short of the critical 15% threshold in some precincts. It was a clear failure. Now he has to go to New Hampshire with no momentum whatsoever. It’s not over yet, but it’s not looking good for Biden at this point.

Many have suggested the Democratic Party establishment intentionally skewed the results to obfuscate Sanders’ good showing and to avoid embarrassing establishment favorite Joe Biden.

Democrat Party officials naturally deny the charge, arguing that the glitches with the app were just that — glitches, and that there’s nothing else to it. But I’m not convinced.

I believe Bernie Sanders probably won Iowa, then Iowa’s Democratic establishment ginned up a “systems failure” to deny him his big moment and stop his momentum going into New Hampshire. Get used to this. Democrats are out to stop Bernie.

The surge of Bernie Sanders in the Iowa caucus and New Hampshire primary polls have mainstream Democrats in a panic. Bernie is vibrant and authentic, but he’s also a hard core socialist who took his honeymoon in the Soviet Union during the height of the Cold War.

Election outcomes are always uncertain, but Sanders looks like a sure loser to Donald Trump in critical heartland swing states like Pennsylvania, Ohio, Michigan, and Wisconsin.

What about Elizabeth Warren?

She is no better with her equally socialist outlook and support for open borders, nationalized medicine and the Green New Deal. Meanwhile, Buttigieg is only 38 years old and was the mayor of a small city with no other political experience.

And the other Democrats are doing poorly in the polls. Tulsi Gabbard is as much disliked by Democrats as she is opposed by Republicans. The party has nowhere to turn among the frontrunners.

It’s true that Biden is ahead (barely) in national polls. The Real Clear Politics poll-of-polls (one of the most accurate available) shows Biden with 27% nationally and Sanders with 21.8%. But that’s almost inside the margin of error and Sanders has been surging lately. Besides, national polls don’t matter because we don’t have national elections; we go state-by-state. When you get to important state polls, Sanders is dominating.

He beat Biden solidly in Iowa, and is ahead 25.6% to Biden’s 17.6% in New Hampshire. No candidate has ever won Iowa and New Hampshire without becoming their party’s nominee. With the Iowa caucus results still not final, it’s possible Sanders could still win both states. The Democratic establishment is having fainting spells as a result.

If Sanders continues to surge and Biden continues to fade, expect mainstream Democrats to coalesce around Michael Bloomberg as the moderate alternative to Sanders. But there’s only one problem with Bloomberg — he’s not really a moderate.

Bloomberg supports late-term abortions and has called for gun confiscation. Those positions may be OK with Democrats, but they get no support among Republicans and moderate independents from the Midwest.

In addition, Bloomberg wants to impose a surtax of 5% on high-income individuals. The problem with taxes like that is the money is usually wasted and the tax itself can slow investment in the economy. Also, taxes of this kind always start out aimed at the “wealthy” but sooner or later trickle down to affect the middle class by amendments or inflation in tax brackets.

Bloomberg may appear moderate to Democrats frightened by Bernie Sanders, but he appears extreme to everyday Americans. That’s one more reason why Trump is on a path to victory in November regardless of what Democrats do in the meantime.

The only factor that can realistically derail Trump, barring the unforeseen, is a recession between now and November. That’s unlikely. While the economy is sluggish, my models aren’t telling me that a recession is likely before the election. So Trump is on track for reelection. Even some of Trump’s harshest critics agree he stands an excellent shot this fall…

Mara Liasson, for example, is an NPR reporter and well-known Trump-basher. If you support Trump or just want to get a read on the electoral landscape, your first reaction might be to skip an article by a Democrat partisan. But that would be a mistake. In a recent article, Liasson exhibits her usual Trump attacks, but she does so in a context that takes the Democrats to task for such weak opposition.

She points out that Trump has a “locked-in base” (which is true). That gives Trump considerable leeway to expand his support since he does not have to worry about his base. Importantly, she recognizes that presidential elections are decided by the Electoral College, not by a majority of the popular vote.

This means Trump could lose the popular vote by as much as 5 million votes (in 2016 he lost to Hillary Clinton by 3 million votes) and still win reelection by the Electoral College. This is because Democrat votes are heavily concentrated in New York and California. Those states are certain to vote Democratic, but millions of extra votes over a simple majority are wasted because they provide no additional electoral votes.

Meanwhile, Trump’s support is spread more evenly among important states like Wisconsin, Michigan, Florida and Pennsylvania that collectively give him an Electoral College edge.

Finally, Liasson points out that turnout is critical. It doesn’t matter if you have fewer supporters as long as you have higher turnout. That’s another Trump advantage that does not show up in opinion polls. Liasson may be a Trump-basher, but she has practically written the playbook for how Trump will win.

And right now, he’s on course to.

Regards,

Jim Rickards
for The Daily Reckoning

The post Democrats in Disarray appeared first on Daily Reckoning.

Trump!!!

This post Trump!!! appeared first on Daily Reckoning.

The president appeared before the American people last evening… and assessed the state of the American Union.

In his telling the union is in a swell and exalted state, marvelous beyond compare.

And he is eager to accept credit…

A grand fellow, by all the gods, the president has fanned a mighty cyclone of American prosperity.

The result is record-low unemployment for Americans of every model and make…

For African-Americans. For Hispanic-Americans. For Asian-Americans. For women. For veterans, the disabled, the undegreed, the young.

And Mr. Trump let us know that America’s record stock market is the world’s envy.

We can only look on in awe, eyes apop and jaw adrop. As we have written before…

We confess a sincere admiration for any man so certain of his stars, so certain of whom the angels are for… and whom they are against.

No modesty hangs about him. No self-doubt gnaws at him. No scruple enchains him.

In Trump we have the popinjay pure and perfect, the supreme chest-thumper, the peacock of peacocks.

The fellow is simply… sui generis.

We concede he may be no deeper than the skin that encases him. But intellectual depth is vastly overrated in a president.

Overrated? It is often a menace…

It is the “deep thinkers” who think the republic into its deepest fixes.

They are drunk on their thoughts… as other men are drunk on alcohol.

The “Sage of Baltimore,” H.L. Mencken, certainly hooked onto something when he wrote:

“We suffer most when the White House bursts with ideas.”

Woodrow Wilson — for example — was the only doctor of philosophy to ever seize the White House.

He presided over Princeton University before he presided over the United States.

And the nation is still afflicted with his lovely ideas…

Who signed the Federal Reserve Act into law?

The answer is Mr. Wilson.

Who signed the federal income tax into law?

The answer is Mr. Wilson.

The same Mr. Wilson ordered the doughboys “over there.” 116,000 of them will remain forever over there.

And the Versailles Treaty that closed the “war to end all wars” spawned the “peace to end all peace.”

WWI was “the Great War” until an even greater war imposed a Roman numeration upon it.

In contrast to the intellectual president, we find Wilson’s successor once removed — Calvin Coolidge.

In Mencken’s telling, Coolidge…

Slept more than any other president, whether by day or by night… There were no thrills while he reigned, but neither were there any headaches. He had no ideas, and he was not a nuisance.

Take due note of the phrasing — it was not “He had no ideas, but he was not a nuisance.” It was rather:

“He had no ideas, and he was not a nuisance.”

Loftier praise for any president is scarcely imaginable: He had no ideas and he was not a nuisance.

Being a nuisance, alas, is how presidents nudge their way onto the history pages.

Whom do historians slobber and swoon over — a Calvin Coolidge or a Franklin Roosevelt?

A Grover Cleveland — or a Theodore Roosevelt?

Both Roosevelts were colossal nuisances.

Our central criticism of Trump is not that he is a nuisance… but that he has not been nuisance enough.

Trump was elected, in fact, to be a nuisance.

Not a statesman, that is — but a demolition man.

Mr. Trump pledged to “drain the swamp.”

He would end the forever wars… and disentangle the United States from entangling alliances.

And did he not pledge to retire the debt?

Yet the United States remains entangled as ever… and more indebted than ever.

The swamp, meantime, remains as deep, as thick, as gaseous as ever.

But it is not our purpose to bring the president into contempt or ridicule. We have no heat against the fellow whatsoever.

His presidency vastly entertains us, in fact — as a circus entertains us, as a professional wrestling bout entertains us, as the sight of a man with his shirt on backward entertains us.

And his campaign rallies are the highest comedy. Nothing comes within 100 miles of it.

Besides, we never believed that Mr. Trump stood the slightest chance of emptying the swamp.

Nearly the entire governmental apparatus is against him — including much of his party.

He is simply a man out of his depth.

But a George Washington would be out of his depth today.

Even “Old Hickory” Andy Jackson would be under the presidential desk the first day on the job, sinking a bottle of Tennessee’s hardest whiskey and sobbing for his mother.

No, the national rot is too deeply advanced for any one man to turn back.

The termites have eaten too deeply into the floorboards beneath… and the rafters above.

And they are after whatever solid timber that remains…

Regards,

Brian Maher
Managing editor The Daily Reckoning

The post Trump!!! appeared first on Daily Reckoning.

Trump!!!

This post Trump!!! appeared first on Daily Reckoning.

The president appeared before the American people last evening… and assessed the state of the American Union.

In his telling the union is in a swell and exalted state, marvelous beyond compare.

And he is eager to accept credit…

A grand fellow, by all the gods, the president has fanned a mighty cyclone of American prosperity.

The result is record-low unemployment for Americans of every model and make…

For African-Americans. For Hispanic-Americans. For Asian-Americans. For women. For veterans, the disabled, the undegreed, the young.

And Mr. Trump let us know that America’s record stock market is the world’s envy.

We can only look on in awe, eyes apop and jaw adrop. As we have written before…

We confess a sincere admiration for any man so certain of his stars, so certain of whom the angels are for… and whom they are against.

No modesty hangs about him. No self-doubt gnaws at him. No scruple enchains him.

In Trump we have the popinjay pure and perfect, the supreme chest-thumper, the peacock of peacocks.

The fellow is simply… sui generis.

We concede he may be no deeper than the skin that encases him. But intellectual depth is vastly overrated in a president.

Overrated? It is often a menace…

It is the “deep thinkers” who think the republic into its deepest fixes.

They are drunk on their thoughts… as other men are drunk on alcohol.

The “Sage of Baltimore,” H.L. Mencken, certainly hooked onto something when he wrote:

“We suffer most when the White House bursts with ideas.”

Woodrow Wilson — for example — was the only doctor of philosophy to ever seize the White House.

He presided over Princeton University before he presided over the United States.

And the nation is still afflicted with his lovely ideas…

Who signed the Federal Reserve Act into law?

The answer is Mr. Wilson.

Who signed the federal income tax into law?

The answer is Mr. Wilson.

The same Mr. Wilson ordered the doughboys “over there.” 116,000 of them will remain forever over there.

And the Versailles Treaty that closed the “war to end all wars” spawned the “peace to end all peace.”

WWI was “the Great War” until an even greater war imposed a Roman numeration upon it.

In contrast to the intellectual president, we find Wilson’s successor once removed — Calvin Coolidge.

In Mencken’s telling, Coolidge…

Slept more than any other president, whether by day or by night… There were no thrills while he reigned, but neither were there any headaches. He had no ideas, and he was not a nuisance.

Take due note of the phrasing — it was not “He had no ideas, but he was not a nuisance.” It was rather:

“He had no ideas, and he was not a nuisance.”

Loftier praise for any president is scarcely imaginable: He had no ideas and he was not a nuisance.

Being a nuisance, alas, is how presidents nudge their way onto the history pages.

Whom do historians slobber and swoon over — a Calvin Coolidge or a Franklin Roosevelt?

A Grover Cleveland — or a Theodore Roosevelt?

Both Roosevelts were colossal nuisances.

Our central criticism of Trump is not that he is a nuisance… but that he has not been nuisance enough.

Trump was elected, in fact, to be a nuisance.

Not a statesman, that is — but a demolition man.

Mr. Trump pledged to “drain the swamp.”

He would end the forever wars… and disentangle the United States from entangling alliances.

And did he not pledge to retire the debt?

Yet the United States remains entangled as ever… and more indebted than ever.

The swamp, meantime, remains as deep, as thick, as gaseous as ever.

But it is not our purpose to bring the president into contempt or ridicule. We have no heat against the fellow whatsoever.

His presidency vastly entertains us, in fact — as a circus entertains us, as a professional wrestling bout entertains us, as the sight of a man with his shirt on backward entertains us.

And his campaign rallies are the highest comedy. Nothing comes within 100 miles of it.

Besides, we never believed that Mr. Trump stood the slightest chance of emptying the swamp.

Nearly the entire governmental apparatus is against him — including much of his party.

He is simply a man out of his depth.

But a George Washington would be out of his depth today.

Even “Old Hickory” Andy Jackson would be under the presidential desk the first day on the job, sinking a bottle of Tennessee’s hardest whiskey and sobbing for his mother.

No, the national rot is too deeply advanced for any one man to turn back.

The termites have eaten too deeply into the floorboards beneath… and the rafters above.

And they are after whatever solid timber that remains…

Regards,

Brian Maher
Managing editor The Daily Reckoning

The post Trump!!! appeared first on Daily Reckoning.

“If There’s a Recession, Don’t Worry”

This post “If There’s a Recession, Don’t Worry” appeared first on Daily Reckoning.

“Pride goeth before destruction,” warns the Book of Proverbs… “and a haughty spirit before a fall.”

The Federal Reserve might keep this biblical reproach close by…

For as one Federal Reserve magnifico boasted recently — pridefully and haughtily:

“If there’s a recession, don’t worry.”

Don’t worry, that is, because “the Fed is very powerful.”

This information we gathered through our vast web of spies…

Dispatch From a Banking Conference in Puerto Rico

The Federal Reserve hosted a recent banking conference on the Caribbean island of Puerto Rico.

Old Daily Reckoning hand and “sovereign man” Simon Black dispatched an agent to listen in… who wired back the transcript.

Says Simon, via his man in San Juan:

One very senior Fed official… told the audience, “If there’s a recession, don’t worry,” because “the Fed is very powerful” and has all the tools it needs to support the economy.

To which instruments of power does this grandee refer?

We have no specific information. But interest rates cannot be among them…

The Fed Has Limited “Strategic Depth” to Fight Recession

History argues the Federal Reserve requires rates of 4% or 5% to vanquish a recessionary foe.

Only these elevated rates give it the “space” to slash rates sufficiently — to zero if necessary.

But today’s federal funds rate ranges only between 1.50% and 1.75%.

Thus the central bank’s last trench line — the zero bound — lies dangerously close in back of it.

That is, the Federal Reserve presently lacks the strategic depth to mount a successful rate-based defense… and wear down the enemy in its protracted meat grinder.

Should the enemy puncture the Fed’s shallow defenses, the vast rear is currently open to it. And recession would have the entire economy in siege.

What weapons, then, might remain in the Federal Reserve’s arsenal?

Additional quantitative easing? Perhaps “forward guidance”? They are on hand, yes.

But what about negative interest rates, previously confined to the drawing board? Why make the zero bound your last line of defense?

Why not stretch the barbed wire behind it, lay down mines… and dig additional trenches in negative territory?

Negative rates would deepen and stiffen the defense, their boosters argue.

Three Full Percentage Points!

Former Federal Reserve Field Marshal Ben Bernanke insists these are formidable anti-recession armaments. He sets great store by them, in fact.

Quantitative easing, forward guidance and negative interest rates — combine them one with the other, says this strategic genius…

And they equal three full percentage points of rate cuts. Three full percentage points!

By his lights then, today’s federal funds rate is not as low as 1.50% — but as high as 4.75%.

That is… the Federal Reserve presently enjoys nearly all the strategic depth required to fight back recession.

We suppose these are the weapons our anonymous central banker has in mind — those that render the central bank “very powerful.”

But we are not half so convinced. We see not an impregnable defense… but a Maginot Line, vulnerable to a superior strategy.

We envision a flanking attack, with enemy armor snaking its way through the Ardennes, bypassing the forts.

We further envision a thrust through the Moselle Valley… and into the defenseless economic interior.

The Fed’s Weak Defenses

Place no faith in the Federal Reserve’s Maginot Line, argues Jim Rickards:

Here’s the actual record…

QE2 and QE3 did not stimulate the economy at all; this has been the weakest economic expansion in U.S. history. All QE did was create asset bubbles in stocks, bonds and real estate that have yet to deflate (if we’re lucky) or crash (if we’re not).

Meanwhile, negative interest rates do not encourage people to spend as Bernanke expects. Instead, people save more to make up for what the bank is confiscating as “negative” interest. That hurts growth and pushes the Fed even further away from its inflation target.

What about “forward guidance”?

Forward guidance lacks credibility because the Fed’s forecast record is abysmal. I’ve counted at least 13 times when the Fed flip-flopped on policy because they couldn’t get the forecast right.

So every single one of Bernanke’s claims is dubious. There’s just no realistic basis to argue that these combined policies are equal to three percentage points of additional rate cuts.

Fighting the Last War

Generals prepare to fight the last war, it is often argued. We suppose central bankers prepare to fight the last crisis.

Meantime, the relentless enemy is preparing to wage the next recession. It learns, it adapts. It originates new tactics, new weapons… new strategies.

It bypasses Maginot Lines.

And so we expect the next recession to catch our hidebound central bankers unaware… facing straight ahead while the tanks roll in from their flank.

But we expect a new war plan to emerge from the next recession, once all existing defenses are flat.

The New Wonder Weapon

At its center will be the wonder weapon of Modern Monetary Theory, or MMT.

Up it will go in its Enola Gay… and the fiscal authorities will unload it high above Main Street.

Cash will come raining down upon the unsuspecting residents below, like so much confetti.

They will then vanish into stores, into restaurants, into theaters to disgorge their newfound bounty.

The secondhand recipients of this bounty will proceed to exchange it for autos, boats and houses.

The third-hand recipients will in turn send the money on its way, fanning out in greater circles yet.

The entire economy would soon be on the jump… and recession thrown headlong into rout, permanent and humiliating rout.

But this super-weapon packs greater wallop yet…

Everything for Everyone

It can furnish the wherewithal for a “Green New Deal,” universal health care, free college for all… and guaranteed employment.

If John is unemployed, if Jane cannot meet tuition, if Joe lacks health care… then simply print the money to make them whole.

Send it marching off for duty in the general economy, where it will make all shortages good.

MMT says unemployment, for example, is direct evidence that money is overtight.

Print enough and you have the problem licked.

But didn’t the government print money like bedlamites after the financial crisis? How can money possibly be tight?

Ah, but QE’s trillions were funneled off into credit markets, where they liquified the financial system.

They did not enter the Main Street economy. That is why inflation never got its start.

But with MMT, the money goes straight from the print press to the Treasury.

It can then be spent into public circulation — on a New Deal, for example. Green, red, blue, purple or pink… the choice is yours.

Or for free college, universal Medicare… jobs for all.

But you raise an objection. MMT is a cooking recipe for massive inflation, you say… even hyperinflation.

Inflation? No Problem

Yes, but the MMT crowd has anticipated your objection and meets you head on.

They actually agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.

In fact, inflation is the one limiting factor they recognize, the one potential monkey wrench jamming the gears.

But they have the solution: taxation.

If inflation begins to bubble, to gurgle, the government can simply drain the excess dollars out of the system.

Under MMT the economy is the tub. Taxation is the drain.

Under the theory, in fact, stifling inflation is taxation’s central purpose. It is not to raise revenue.

“Ignoring It Would Be Foolish”

Is the theory crackpot? Yes, we are convinced it is.

But desperate times invite desperate measures. And when recession rolls on through the Federal Reserve’s defenses… desperate measures we will see.

We cannot say when of course. Nonetheless…

“[It] is coming,” warns analyst Kevin Muir. “Ignoring it would be foolish.”

Yet these are foolish times…  inhabited by foolish people.

Do you require proof?

Simply recall the recent counsel of a senior Federal Reserve official:

“If there’s a recession, don’t worry.”

Regards,

Brian Maher
Managing editor The Daily Reckoning

The post “If There’s a Recession, Don’t Worry” appeared first on Daily Reckoning.

China’s Collapse Has Only Begun

This post China’s Collapse Has Only Begun appeared first on Daily Reckoning.

The market bounced back today after Friday’s 600-point plunge in the Dow. But we haven’t heard the last of the coronavirus…

We’re still in a period of great uncertainty when it comes to the human and economic cost of the pandemic and the extent of the pandemic itself.

As I write, there are over 17,000 reported cases. Of those, 362 deaths have resulted and 487 people have recovered. The remaining roughly 16,200 cases are in various stages of treatment with uncertain outcomes.

Still, the 2% fatality exhibited so far is comparable to the Spanish flu pandemic of 1919–20, which ultimately killed an estimated 50 million victims.

Almost 99% of the reported cases are in China, with 62.5% of those Chinese cases in the vicinity of Wuhan, a major city of over 11 million people.

But the disease has spread (mostly through air travel from China or contact with Chinese travelers). There are 20 cases in Japan, 19 cases in Thailand and 18 cases in Singapore. The U.S. has 11 reported cases as of this morning.

It often takes laboratories six months or more to discover an effective cure or treatment for a virus of this type.

In the meantime, quarantine is the most effective approach. But how do you quarantine a city of 11 million, let alone a country of 1.3 billion people?

It’s very difficult to project growth rates. But if the virus stays on its current growth trajectory, more than 100 million people could be infected by the end of this month alone.

Many countries have banned arrivals from China and leading airlines have discontinued flights to China. That helps, but the virus continues to spread.

This all comes at a time that should be a period of great joy in China — the Lunar New Year. If you can imagine a two-week Christmas celebration, that’s about the magnitude of it.

While the long-term medical outcome is uncertain, the short-term economic damage is not. And China cannot afford a sustained economic setback.

China’s economy is already suffering extreme damage.

Their consumer economy has stalled as people stay home and avoid public transportation, stores and restaurants. The epicenter of the virus, Wuhan, is the capital of China’s Hubei province, a critical manufacturing center that represents 4% of Chinese GDP.

It now looks like a ghost town.

IMG 1

IMG 2

IMG 3

Many other major Chinese cities have been shut down, with no citizens allowed to leave and transportation systems closed.

Tourism is dead and many businesses are requiring that executives cancel trips to China until further notice.

This comes at a time when the Chinese economy was slowing anyway. And some economists project that China’s growth rate could drop two full percentage points this quarter. That would translate to roughly $62 billion in lost growth.

Meanwhile, Chinese stocks promptly crashed over 8% in a matter of minutes this morning, after being closed for a number of days.

Stimulus measures in the form of monetary ease are being tried. The People’s Bank of China (PBOC) says it will buy 1.2 trillion yuan ($173 billion) in short-term bonds to add liquidity to the financial system.

But the net amount of liquidity that will make it into the system is actually much lower.

According to PBOC data, over 1 trillion yuan ($22 billion) worth of other short-term bonds matured today. So the net amount of liquidity entering the system is actually significantly less than the raw number indicates.

And the stimulus is unlikely to work because of China’s sky-high debt levels. China’s debt-to-GDP ratio, for example, is about 310%, which is astonishing.

Research by economists Ken Rogoff and Carmen Reinhart persuasively demonstrates that once debt surpasses 90% of GDP, it is impossible to grow our way out of the debt. Again, China’s debt-to-GDP ratio is much, much higher.

Let’s hope the coronavirus is contained soon. Unfortunately, the damage to China’s economy is already happening and will persist even if the virus is soon under control.

And given China’s impact on the global economy, the rest of the world will suffer as a result.

Regards,

Jim Rickards
for The Daily Reckoning

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Time to give Powell Truth Serum

This post Time to give Powell Truth Serum appeared first on Daily Reckoning.

The coronavirus has gone… “viral.” At the very least its media coverage has.

You may have therefore missed the news yesterday:

The Federal Reserve concluded its January FOMC meeting. It thereupon announced it is holding interest rates steady.

The federal funds target rate stays sandwiched between 1.50% and 1.75%.

Jerome Powell gave off his usual post-announcement whim-wham. He talked a lot, that is… but did not say much.

Example: A reporter rose before him with a question…

He asked the chairman if he feared withdrawing support for the “repo” market. The stock market may file a vigorous protest if he does, the implication being.

Powell came back at him this way:

In terms of what affects markets, I think many things affect markets. It’s very hard to say with any precision at any time what is affecting markets.

Yet here is the very picture of precision:

IMG 1

Here, once again, the precise union between the Federal Reserve’s balance sheet and the S&P 500.

The two have gone happily arm in arm, linked, since early October.

Yet a Federal Reserve chairman must master the artful dodge, the skill to pretend ignorance of the most elemental facts — even the evidence of his own eyeballs.

Imagine the scene…

You enter a dining room for your evening meal. Jerome Powell is by your side.

You are astounded to discover a behemoth draft horse lounging upon the dining table. Stunned, ruffled, gobsmacked, you solicit comment from your dining mate…

“What horse?” asks he. “I don’t see a horse.”

Do we condemn the chairman? Do we impugn him, belittle him, call him into ridicule?

No. We are actually in deep sympathy with him. What — after all — is this fellow to say?

Is he to concede that the stock market is a house constructed of playing cards… and that he is its foundation?

That it would come heaping down without his determined and continuous support?

An honest answer would take the floor out of a vast fiction — the vast fiction that the stock market goes by itself, that its own pillars hold it up.

Dose him with C11H17N2NaO2S — that is, dose him with sodium pentothal — that is, dose him with truth serum…

And the ensuing geyser of honesty would collapse the Wall Street stock exchanges… as surely as the ancient Israelites collapsed the walls of Jericho.

Here is a brief sample of what Mr. Powell would confess under chemical influence:

That he is a mediocrity, a blank, a preposterous formula…

That he is far out of his depth…

That he is as fit to chair the Federal Reserve’s board of governors as he is to chair a board of barbers…

That he cannot tell you the next quarter’s GDP at the price of his soul…

That his enflamed hemorrhoids torture him ceaselessly…

That he cannot possibly determine the proper interest rate for millions upon millions of independent economic actors…

That he wields far less influence over interest rates than commonly believed…

That the president of the New York Fed smells…

That there is no actual money in monetary policy…

That he clings yet to his boyhood fantasy of becoming a salesman of life insurance…

That his wife’s cooking is a daily source of agony…

That his — no, no — we had better stop here. Some truths must remain dark. That counts double for a man of Mr. Powell’s high station.

Instead, the good chairman will babble what the world wants him to babble. Like this, for example, from yesterday:

The committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions and inflation returning to the committee’s symmetric 2% objective.

Or this, also from yesterday:

[The] labor market continues to perform well… We see strong job creation, we see low unemployment [and] very importantly we see labor force participation continuing to move up.

And this:

Some of the uncertainties around trade have diminished recently and there are some signs that global growth may be stabilizing after declining since mid-2018.

Does Mr. Powell believe the words issuing from his own mouth? We are far from convinced.

Perhaps it truly is time to fill him with sodium pentathol…

Below, Jim Rickards shows you why the happy talk is simply that, and why the Fed has “never been more divided.” Read on.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Time to give Powell Truth Serum appeared first on Daily Reckoning.

A Date and Time for “Financial Armageddon?”

This post A Date and Time for “Financial Armageddon?” appeared first on Daily Reckoning.

Pete H. — a reader — gives us a good, round piece of his mind:

I have read your emails and joined some of your services over the last 10 or more years.

I have put up with your ramblings about the financial world coming to an end pretty much over that same time.

Here is a fact. Nothing has happened since and though no doubt it will one of these decades, if people had listened to you, they would have buried their money with zero return, unlike the markets, which continue to go up. Who cares how or whether it’s wrong or right? It still is going up.

After a while — I mean a long, long while — your dire warnings fall on deaf ears. So unless you can provide a date and time for financial Armageddon, I will continue to reap rewards from fools, be they the Fed, federal government or the debt-ridden world.

We can spare Mr. H. needless suspense. We never can give out the information he seeks: “a date and time for financial Armageddon.”

Nor — for the matter of that — can anybody else, the claims of false prophets notwithstanding.

“You will know neither the day nor the hour”… as the Good Book reads.

Not even the Son of God Himself knows — by His own admission.

But the reader’s tort against us contains justice — by our own admission.

Crying Wolf

Day upon day, year upon year, we moan about the (increasingly) debt-ridden world. We holler against the Federal Reserve…

We shout about an approaching stock market collapse… as the fabled boy shouted about an approaching wolf.

How many phantom wolf sightings can a fellow endure? He eventually turns a deaf ear… as our reader has turned a deaf ear to us.

“Who cares how or whether it’s wrong or right,” he razzes us. “It still is going up.”

We cannot deny it. The market is still going up — despite our impeccable reasoning, despite all the angels of hell.

We certainly credit the Federal Reserve for the market’s recent spree. It has expanded its balance sheet obscenely since September. Let us briefly reintroduce the evidence:

IMG 1

And Exhibit B:

IMG 2

Finally, Exhibit C gives the result:

IMG 3

A Just Stock Market

But let the record reflect:

We have never denied the manipulated stock market can be lucrative. Nor would we deny that bank robbing can be lucrative. Or that counterfeiting can be lucrative.

We have only questioned its authenticity… and its justice.

The stock market should be a scene of free and open combat. Bull and bear, bovine and ursine, let them meet on fair and neutral ground.

There they can settle their quarrels under honest competition.

A scrupulously impartial judge should referee the bout. His lone concern should be the equal application of martial justice.

He must hold the scales even.

And may the winner emerge fair and square, his hand raised in honest victory.

Should it be the people’s champion, the bull, so much the better.

But should the unpopular bear walk out victorious, well then…. the unpopular bear walks out victorious.

The bear would win because he was the stronger fighter. The bull would lose because he was not.

Justice, that is… would be done.

Now enter injustice…

The Fed Rigs the Fight

The Federal Reserve is not a neutral referee in this bout. It is rather an active participant, in active conspiracy with the bull.

How does it influence the outcome?

Before the bout it packs the bull’s gloves with iron. And once the action commences…

If the bull strikes beneath the belt, if he bites in the clinches, if he punches after the bell has rung…

This rogue referee instantly loses his powers of vision. He sees nothing.

And if the bear smites the bull down to the canvas, witless, leaving him to take the count?

Then this corrupto stretches the count until the sprawling bovine can regain the vertical… and his wits:

“O-o-o-o-o-o-n-e… … … … t-w-o-o-o-o-o-o… … … … t-h-h-h-r-e-e-e-e-e-e… … … … ” all the long way to 10.

Meantime, should the bear absorb but a glancing blow, the official declares him loser by technical knockout, the victim of a mighty clout.

What we have then, is not a contest of one against one. We have instead a travesty of two against one.

The badly used bear is denied all chance of victory.

“Fīat Jūstitia Ruat Cælum”

Yes, the crowd roars its approval. Even our reader, though recognizing the wrong, applauds reluctantly this holocaust of justice.

He does — after all — have a wager on the outcome.

But we confess it. Our sympathies go the other way…

There exists a force deep down, within the liver and lights, that wants it square — that demands honest justice.

And so a fellow leans naturally in an underdog’s direction… and away from the lawless overdogs.

In this instance, he leans toward the underdog bear.

“Fīat jūstitia ruat cælum” is the cry on our lips — “Let justice be done though the heavens fall.”

One day they may. But how much more injustice must the bear endure?

Give him his chance, we say. Else we will never know the rightful winner.

Meantime, we must file a scorching caveat against one of our reader’s claims…

Bury Your Money With “Zero Return?”

Had people taken aboard our advice, says our reader, “they would have buried their money with zero return, unlike the markets, which continue to go up.”

But we have never suggested anyone bury his money… or his head.

Each issue of The Daily Reckoning links to insightful financial research. It serves one purpose: to show you how to profit from today’s markets, rigged or not rigged.

A portion of it — by some miracle of God — somehow succeeds.

Yes, it is true we have recommended gold. Gold offers zero yield — and even lesser thrill.

But if you sank your money in gold instead of stocks… have you really buried it?

Daily Reckoning co-founder Bill Bonner prefers to view the stock market through a golden prism.

The stock market is denominated in dollars. But today’s dollar — relative to the pre-1971 gold-backed dollar — is a wasting asset, a sawdust asset.

Use gold as your yardstick then. You will discover the market’s nominal dollar gains pack far less wallop than commonly supposed.

“The Stock Market Is Worth Less Than Half of What It Was Worth 20 Years Ago”

Mr. Bonner:

In terms of real money — gold-linked, pre-1971 dollars— stocks have been losing ground since the start of the millennium…

The whole bull market — 2009–2019 — for example, was false… phony… a fake-out by central banks.

Yes, stock prices rose impressively in dollar terms. But in real-money terms — gold — the bull market of the last 10 years looks like an average bear market bounce.

In gold terms, the Dow merely retraced half of its losses. You could buy the Dow with 40 ounces of gold in January 2000. By January 2011, the Dow 30 stocks would cost you only 8 ounces.

In other words, stock investors had lost 80% of their money. Then in the following run-up — fueled by extravagant and nutty efforts to inflate asset prices — the Dow-to-gold ratio rose to 22. At that point, stock market investors had recovered about half of what they lost — a classic bear market bounce…

And right now, [gold is] telling us that the stock market is worth less than half of what it was worth 20 years ago.

In gold terms… the stock market is worth less than half of what it was worth 20 years ago?

Could it be?

Thus any money “buried” in gold has been up and doing, busy, putting in hard service.

Meantime, the stock market merely scrambles to recover lost ground.

Will it finally reclaim it all? Alas, no.

“Financial Armageddon” closes in on the stock market. When can you expect it?

Tomorrow we reveal the precise date, hour and second — guaranteed.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post A Date and Time for “Financial Armageddon?” appeared first on Daily Reckoning.