Fed: Consumption Collapse, Negative Rates

image(Payson, AZ)  The Fed is holding a special emergency session today.

The notice on their website says (in part):

It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at 11:30 AM on Monday, November 23, 2015, will be held under expedited procedures, as set forth in section 26lb.7 of the Board’s Rules Regarding Public Observation of Meetings, at the Board’s offices at 20th Street and C Streets, N.W., Washington, D.C. The following items of official Board business are tentatively scheduled to be considered at that meeting.

Meeting Date: Monday, November 23, 2015

Matter(s) Considered

1.Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.

A final announcement of matters considered under expedited procedures will be available in the Board’s Freedom of Information and Public Affairs Offices and on the Board’s Web site following the closed meeting.

Which way will the Fed roll?

The odds are about evenly split between a rate hike and a rate lowering.

Let’s look at the rate hike case first:

As our www.peoplenomics.com ($40/year) subscribers know, last Friday was the analog of May 10, 1928.   That’s because we are in a replay of the lead-in to the last Great Depression, and few appreciate how this all works out.

Very simply, when we look at the Discount Rate, we observe that the Depression-era Fed moved discount rates as follows in the Great Depression lead-in:


Remember, the pre-Depression Fed moved rates UP in February and April of  1928 and again in July of ‘28.  I expected a rate hike before now.

The structural problem the Fed is facing in today’s markets is simple:  With consumer super-saturation at hand, we are increasingly looking at interest rates being low and requiring the further consolidation of capital.

Capital consolidates in Depression lead-ins because of a simple dynamic:  If you have 5% rates and $1-million, you get $50,000 off interest annually.

But when rates go to 1%, then it takes $5-million to keep that $50,000 income stream from bonds.

At some point, this becomes self-reinforcing and don’t look now, but we’re there.

If you are trying to pile up capital, one way to do it is get really skinny on inventory.  When companies take “money off shelves to put in the bank” what happens is cargo collapses.

Last week, the Baltic Dry Cargo index collapsed to its lowest level ever.  And this morning, we see it’s even low than that – down under the 500-index level to 498 as of the Friday close.

We like to look at other numbers, as well.  The Harper-Petersen HARPEX container index was at 389 in their most recent  read.  While that is nothing like the index 10-year high of 1,402 in late 2007/early 2008, it is still holding above rates in the 275 range shown during the 2009 market wash-out low.

We see much the same thing from the Association of American Railroads weekly Railtime Indicators report for Nov. 14:

For this week, total U.S. weekly rail traffic was 543,681 carloads and intermodal units, down 4.7 percent compared with the same week last year. 

Total carloads for the week ending Nov. 14 were 270,793 carloads, down 8.7 percent compared with the same week in 2014, while U.S. weekly intermodal volume was 272,888 containers and trailers, down 0.3 percent compared to 2014.

Three of the 10 carload commodity groups posted an increase compared with the same week in 2014. They included: miscellaneous carloads, up 19.8 percent to 9,077; motor vehicles and parts, up 3.3 percent to 18,206; and chemicals, up 0.1 percent to 29,178 carloads. Commodity groups that posted decreases compared with the same week in 2014 included: metallic ores and metals, down 22.9 percent to 20,715 carloads; petroleum and petroleum products, down 16.8 percent to 13,171 carloads; and coal, down 14.5 percent to 95,293 carloads.

For the first 45 weeks of 2015, U.S. railroads reported cumulative volume of 12,548,012 carloads, down 4.8 percent from the same point last year; and 12,046,567 intermodal units, up 1.9 percent from last year. Total combined U.S. traffic for the first 45 weeks of 2015 was 24,594,579 carloads and intermodal units, a decrease of 1.6 percent compared to last year.

And last, but not least, we also see that West Coast ports are running counter.  A couple of examples:


Things were slower declining – but just a tad – Angeles, however:


What it really seems to come down to is that while production is slowing a bit in China, much of the decline in the Baltic Dry may be due to lower cap-costs for ships and much lower fuel costs.  We are not sure how much of the decline in rail traffic might be due to energy efficiencies, reduction in coal fired plants and new pipelines coming on line.

It is fair to see, though, that the special Fed meeting today will be pressured by negative interest rates that are popping up.

For example, the UK Daily Mail reported Small Swiss bank become first to hit savers with negative interest rates – CHARGING them to take their money.  This is where “sticking money in a mattress” came from in the last Depression.

I have a friendly side wager (a nickel, I save the big stuff for casino play).  He figures that the Fed will talk a hard line and remain accommodative and might do another quantitative easing.

To be sure, lots of sites are forecasting a drop in rates (example: Negative Interest Rates Coming to the U.S.) but I tend to take the Fed at its word.  They have been rattling the rate hike stick for a while and the prototype behavior leading into the last Depression is certainly there.

And a small increase now would tell the markets that “there actually IS a recovery” and the continuing “improvement” in the unemployment rate (if you ignore 95-million people who want jobs) is reason enough to raise rates.

The Fed needs to stampede some money out of dead pools.  That would give us our predicted 1.5 years ahead of blow-off top – and the election of a Hoover-like president in 2016 would certainly fit nicely.  The mid-year collapse in 2017 and persisting to WW III?  Well, that won’t be so much fun, but you can’t have everything, now, can you?

Another reason I don’t think the Fed will lower rates?  Go look at the 10-year Treasury Note chart here and you will notice that rates are not at the lower end of their 2- std.dev. trend channel.

If the Fed actually raises as they have been jaw-boning (forever!), look for a major market decline with stops around S&P 2,020 down to 1,840’ish.  But those would be splendid entry points for when money comes out of the pools.

I don’t want to lose my nickel wager with the BonDon but it wouldn’t be the first bet I’ve ever lost.  Besides, stories like this one bolster my case:  ”Federal Reserve’s John Williams Say Strong Could Make Case for Rate Hike…”

No reason not to make the same mistakes that led to the 1929 debacle, right?  Banksters are a fairly predictable lot, after all.

Market closing data was in yesterday’s UrbanSurvival update sent out via email Sunday.  This is a free service and you can sign up for it over in the right column somewhere over this-a-way –>>>

NOLA Shootings/Terrorism

We don’t think it’s terrorism, but check out the shooting Sunday at a New Orleans block party that left 16-wounded

Meantime the terrorism drum is still being beaten as No sign of Paris suspect in Belgium raids as Brussels remains under high alert.

And in Africa, Mali TV shows photos of man and woman suspected in hotel attack.

Yes, Canadians Really Are Smarter:

Limiting their refugee intake to women, children, and whole families.

Way simple answer rather than the mush-minded, butt-brains BS we’re having shoved our way out of the District of Deception.

All Enemies foreign and WHAT?

Write us, please, when the military-aged males show up in your town.  That’ll fry a server, shortly…

Political Correctness is Killing Us, Dept.

From Time: College Yoga Class Canceled Over Link to ‘Cultural Genocide’  This is all about the transition to a world where a vocal Minority can run roughshod over the Majority.

Look around yourself and repeat after me:  Pattern!.

Common Core – Flunking Statistics

Speaking of weak-minded political correctness disease, a dandy story out of Nevada on how Common Core testing has been going.

Since the early results were from rural areas where there are often two-parent homes and something besides texting, of course the kids would test better in the rural areas away from mind-pollution…

I should haul out by “beat the academics stick” about here.  Go look up stup-diculous and let me know what it means…

OK, off to the road trip home…more from the next hotel…


Fed: Consumption Collapse, Negative Rates — 8 Comments

  1. Had a thought about one value brought about by all of those people who have amassed collections of gold and silver coins, despite the recent caving of price, in that in a total failure of the fiat system those people will have the beginnings of a “new” medium of exchange for goods and services. We’ll have to print up pocket flash cards of the relative value of each type. Sheeze, who’da thunk that GoT would have brought this to our reality.

  2. This is what I have been thinking asking you about with regards to the Federal Reserve and wanted to see if you could write a column on it. Now I am not going to get this out very detailed/descriptively/perfectly, but I hope you get the gist of what I am trying to ask and find out about.

    Do you think, George, that the Federal Reserve would willing disband itself IF it had a back up plan in place? Can it morph itself to a new entity and regain its financial footing just under a new name, new country, and new start? This rebranding, will it allow itself to pretend to go under (and take down the USA) so it can pretend to turn in or convert the Federal Reserve Notes to the ‘newly knighted currency’ and act like everyone else who will be also starting over? What I am getting at is this….would the Federal Reserve recklessly take the USA into another great depression? What is in it for them? Okay, yes, I know….buy low, sell high, can you imagine all that printed money buying up anything and everything, (meaning all the struggling people trying to sell anything so as to feed themselves and their families, etc.) but what would create or sustain a recovery? Okay, WWIII.

    But what if this ‘default/destruction’ we are headed for cannot be controlled, contained, or managed by them and it gets out of hand completely, like a WORLD dominio depression?

    I have heard about the Russia/China/Brazil, etc., currency/trading bloc, could this be a replacement if the Federal Reserve system fails or falls?

    What could possibly ALLOW China and Russia to drop the Federal Reserve Note as the World Reserve Currency without the Federal Reserve being able to do anything about it?

    I ask this because I had a dream on Thanksgiving day, 2009, that said that China/Russia would drop the dollar as the world reserver currency, that America’s trading partners, drop the dollar. Since I am not a holder of any stock, IRA or 401k, nor a financially savvy person, nor a reader of that kind of material at that time in my life, that information did not come to me because I was well read in financial matters. So, WHERE did that dream come from, AND if precognitive, WHAT scenario could allow that to happen?


    Maybe there are too many hypotheticals, but I wanted to ask you what you think of all those possibilities.

    Thank you.

  3. Where are the travelogue pictures? I’ve done Phoenix up to Sedona plus the backcountry jeep tour,(Majestic!!), and the Apache Trail through the Superstition Mountains back through Globe.(Stunning!!!) But not Payson and Mogollon Rim country, I’d like to see the pictures.

  4. The important numbers on the container stats is the number of returning empties. Keep in mind that the USA population grows by 3% per year, and any economic number that does not increase by at least that amount is in negative territory and all YOY negative numbers need to be placed further into negative by that 3% as well. So a one percent decrease YOY is actually a four percent decrease. Or you could just consider that the population or the nation just got 3% more impoverished.

    As I have said before, any economic number that changes less than 2% is statistically insignificant. But when his 3% rule is openly applied, the economic numbers do not have quite the same snooze factor.

  5. This Friday could be a very bad day in this country. Black Friday could very well be the day the “terrorists” strike. What better timing and place but to hit a bunch of crowded malls early in the morning when it’s dark out.

  6. Hey, George, I started reading Ure novel this weekend and I have to say that it’s really pretty damn good. I’m not the type to give praise where it isn’t due, so good job.

    I bought my copy on the first day it was out and I know you’ve done some tweaks/corrections based on reader input, so you may have this fixed already. However, early on in the book you refer to a CAC card as a ‘computer access card’ when it’s really a ‘common access card’ (even though it’s used for computer access among other things).

    I’ve trod the PNW underfoot in my days on this rock and I like the level of detail you use setting the scenes. I also like the technical detail of your writing. I enjoy the writing of somebody who knows what they’re talking about.