Fed Meeting: Managing Collapse

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A while back, on our https://peoplenomics.com site, we suggested that America’s decline into a second depression might not be recognized as such, at least for the first half-dozen years.

The key is properly orchestrating a media-fooling blend of actual deflation, the never spoken of Modern Monetary Theory, and backed up with high print rates of fiat money.

Since the Fed meeting starts tomorrow – with the rate announcement Wednesday afternoon – let’s see if we can figure out what’s going on behind the curtain.

On the money-creation side, it’s clear to us how gingerly the Fed is treating this economy.  According to the latest H.6 money stocks report, M1 (cash and equivalents) has increased 6.7 percent in the last year.

Importantly, the broader measures of money, like M2, are going up at a 4% rate.

On the other hand, the US GDP figures out last week shows a Q1 2017 to Q1 2018 increase of 4.76%.

One of the real underlying problems (and why the Fed is “gingerly” about things) is that they are trying to inflate their way out of a depression without going whole-hog into hyperinflation.

You can see it in the data on the Velocity of Money at M2.

Essentially, what happened is velocity (or turnover) of money began to slow dramatically as investors rediscovered bonds, which by 2000 were gaining quickly because of declining interest rates.

As fixed incomes appreciated (concurrently with falling rates) there was a natural inclination of money to seek safe bonds which are slow-motion investments.

The result, at least so it appears, is that velocity of money has started the tiniest of upturns.  If the Fed raises rate too quickly, it will jam up the cost of borrowing the federal deficit…oh, and ruin the bond market – which is globally almost twice the size of stock markets.

What makes this week’s Fed meeting so interesting is that we have something of a discontinuity.

Normally, if higher inflation is foreseen, we would see gold beginning to take off.  So would silver, oil, and precious metals like palladium.

They aren’t.

In fact, if you flip over to www.finviz.com and pick oil for example, you can see an Elliott count from last July’s lows of five waves up (a 1-2,1-2, 3,4, and 5) which may be the peak for a while.  We’ll have to wait and watch.

Looking at other commodities, like gold, there’s a chance of a break to $1280 or lower.  Silver? A break below $16 is possible in the charts.

Even palladium could be headed down to $850, or thereabouts.

This is not to be overly pessimistic.  But, we are mindful that there are plenty of extremes in the economy and with the latest move by Ford, we get this queasiness thinking “What if the tax break doesn’t really buy us a sustainable increase?”

I’ve warned before on this, and the much vaunted Reagan Tax cuts were gone in a year or two.

This is not a “raving” by a nutter in the woods.  Writing for the Brookings Institution, David Wessel presents a very similar view.  Like me, Wessel looks at tax cuts and comes to this:

As projections for the deficit worsened, it became clear that the 1981 tax cut was too big. So with Reagan’s signature, Congress undid a good chunk of the 1981 tax cut by raising taxes a lot in 1982, 1983, 1984 and 1987. George H.W. Bush signed another tax increase in 1990 and Bill Clinton did the same in 1993. One lesson from that history: When tax cuts are really too big to be sustainable, they’re often followed by tax increases.”

And that tendency to swell deficits will likely be a contributor (in a year to three) for a major tax re-hike because we are already seeing some acceleration upward in the growth of the Federal deficit.  Those who tout things like Reaganus Maximus or whatever have done a tremendous disservice to people.

There’s no free lunch – anywhere.

Just like an increase in welfare and food stamp issuance is a free lunch for the under and unemployed, so too, the free lunch for the middle class is a tax reduction.

The commodity price charts are suggesting there is no (or little) further upward movement like in the traditional energy/precious metals complex.

With that, although the futures are pointing to a 100 point pop at the open, if you fire up your trading platforms you’ll see that “opening pops” have been commonplace, with disappointing day-endings.

Don’t be surprised to see the pattern repeat this week, too.

A decline – which in essence would be lobbying the Fed to go slower on rate hikes – is my guess for the end of today (and tomorrow’s) trading.  As always, not financial advice.  Just some outback common sense.

Poddy Mouth “Comic”

The headline about the correspondent’s dinner in DC run like this: “Trump scolds ‘filthy’ comedian. Head of correspondents group regrets monologue.”

Horrible.

Border Mess

Caravan of Central American Migrants Told U.S. Border Crossing Is at Capacity.

Sometimes in our work, we are struck by a sudden rise in a word’s use.  Take this BBC story, for example: Caravans making a comeback.  Has nothing to do with borders…it’s Brit for travel trailer, near as we can figure.

But when words cluster like that, it is interesting.

What Are They Thinking Dept.

I love to point out press releases from the State Department.  I gives you an odd sense of how your tax money is really being spent.

Take this, for example: State Department Announces 22nd Experience America Visit to Indianapolis, Indiana.

We apologize for failing to mention the 21st  Experience.  But a visit to Indianapolis….really?

“Yessir, ya’ll leave your high life in Singapore…let’s all go visit Indianapolis! ”

ViseGrips, please?

Millennials Wise Up

Losing faith in the latter-day Bolsheviks, we notice, as the socialists of the left aren’t playing well as Millennials grow up and (hopefully) come to their senses.

On that note, off to see the market mash-up.. moron the ‘morrow, as it were…

36 thoughts on “Fed Meeting: Managing Collapse”

  1. Dear Sir,

    The caravan of travellers has arrived as the digital seers predicted? Ready to drop siege ladders and scale heights of the muddy moat? Hear the calls to drop the drawbridge; allow safe passage to pilgrims seeking A’meca?

    Hohum, we must retire and read the army caravan exploits of Ramesses II defending trade hubs to Persia from would-be Trojan interlopers.

    It isn’t the first crusade sending children and rag-tag vagrants to storm the promised land.

  2. Are my old eyes deceiving me, or has velocity of M2 bottomed? Breaking a 30 year trend?

    What’s next? Interest rates rise? Breaking a 30 year trend?

  3. After the correspondent news dinner fiasco, maybe the Fake News & crazy liberals will develop some moral character.

    Only President Trump would go to a city named “Washington” to hold a rally instead of going to the correspondent dinner & then say I am glad I am not in the other Washington. Who says he doesn’t have a sense of humor. It is time for the President to go on the attack against these liberal lawbreakers & haters.

    Make America Great Again.

  4. More FANG stock earnings this week which could propel or tank the market. AAPL after the market closes on Tuesday. I have been raising some cash during rallies to take advantage of a severe downtown.

  5. I think it normally would be commendable for a President to receive a Nobel Peace prize for his work on finally settling the rift between the Korea’s. However, it would be the first time a Peace prize was actually won by bullying the intended targets for Peace. I am still not sure how Obama got his Nobel…and maybe that’s why Trump…if this actually comes to fruition…could be a shoe-in. He may actually accomplish something.

    HOWEVER…me-thinks it is a huge trap for some reason. Kim Jong-un was in China recently, is friendly with Russia and Iran…all as of late…quite annoyed with Trump. This has the smell of a hustle.

    I believe this is more of a power move for China and secondarily…Russia.

    With the US out of the Pacific Trade Partnership, the US may soon be the odd man out on all Pacific trade period. China in particular has an quickly emerging middle class…which puts their manufacturing and exports in danger of being competitive. China, the cradle of sourcing, needs to source and guess whose economy needs a boost? Guess whose people need to be fed? Guess who can promise the lowest wages in the world… because something is better than then nothing the citizens of this country are getting now. Yep…North Korea. Watch as China invests billions into this tiny country as they send their people over to manage newly built joint venture factories. This time however, they won’t be using the Factory JV’s to build American products. They will be building Chinese made products for the growing and materially insatiable Chinese people. China, already the worlds largest economy will double its GDP by 2020.

    In the meantime, due to higher wages in China, Trump imposed tariffs and extremely chilly relations with the Pacific rim…the cost of goods in the US will skyrocket and inflation will reap havoc on the US economy. Our economy will crash…China will ask for debt repayment and this could be the signal for the end of our republic as we know it. Two scenarios will save us. For me and my family…a Calexit would be preferable. We would still be a top five economic power. Throw in Oregon, Washington, Arizona, Utah, Colorado and Nevada and we could have a top two or three economy. This has already been discussed and a name for the country…Pacifica…bantered about. The west coast has no beef with the Pacific rim countries…mainly because they have so many investments, real estate, ex-pats and reliance on our technology to disregard us. The rest of the country…not so much.

    My second choice…get into an all cash position and during an extended vacation to Italy…brunch up on my Italian with my Uncle Guido and buy a nice place on the Amalfi coast. Although, with the dollar being so weak vs. the Euro…that may not be as affordable as it once was. Interesting times.

    • We agree on the trap aspects, but answer me this: WTF did BarkO get a peacer prizer for, exactly?
      I mean besides his choice of parents?

      • I agree George…my third sentence in my rant states just that. I have no clue why BO got that Nobel. Maybe anyone who wasn’t Bush/Cheney would have received that anyway. Who knows? Clouds the Nobel process a bit in my opinion.

      • BTW…watch the most recent episode of Silicon Valley on HBO, George. You often say the Movie is the message…in this case, the TV show quite adroitly points out the cunning of the Chinese people and the consequences of American hubris.

        Oh…and did you get my email and photo of Dean? Really nice guy…3/4 through his book. Fascinating.

      • Why can’t I ever think of something like the Emmies or the Oscar’s..you know maybe send out invitations for the Critical Arts from Respected Performers.. You know The CARP award.
        What’s funny is all these award ceremonies isn’t anything more than patting yourself on the back. The big deal is hype it up so everyone thinks it really means something.
        Give out a little trophy or a certificate to hang on the wall..

    • We here in Arizona don’t want to be thrown in with California. Thanks for thinking of us though.

      • If you are going to do an exit…the reason Utah, Arizona and to some extent, Nevada should be thrown in the mix is for political balance. Remember, most of Orange County, Inland Empire and Central Valley…all the way down to San Diego is Republican. Central Coast to Northern California, Oregon and Washington is Democrat. Colorado and Nevada are split…Utah leans right… and Arizona provides the balance to the right needed to have a country that is evenly split…Plus…you can’t beat the weather in any of those states…

    • My SEVENTH-GRADE teacher, Mother Mary Victor is surely rolling over in her grave. As much as we both liked Theodore Roosevelt – we both acknowledged that he got the Nobel Peace Prize by dragging Russia and Japan (screaming and kicking i.e. bullying) during an actual war to a successful peace. Many comments were made about it at the time.

      Would it have been such a hard thing to actually look up an easily discovered piece of factual history?

      Boggles the mind I guess.

  6. Not relevent, but 25 minuite tutorial on changing cell phone battery, and removing it realizing the pin connectors at the battery and battery itself were glued on and down…and now standard method…forever broken spare failsafe…and short battery times..? Industry sandards, with goggbly goop explanations why…!

  7. “There’s no free lunch – anywhere!”

    The major problem with worldwide educational systems are that you’re bound to accept and repeat the previous errors, in order to get your degree and maintain a job.

    Adam Smith had many good observation to make — but it was never good enough, therefore, our Fed and its costly manipulations. ;-((

  8. Indianapolis? What a garden spot. /sarc Seriously, I lived there twice, and Indy is 180 degrees off from the rest of the Hoosier state!

      • We are now called Austintonians! I liked Austintacious better. It is so so Looney left here, I slap myself with my right hand and it feels left! Every available street is turned into a slow go, no go lane. Crafty mayor, then he raises property taxes to pay to solve the gridlock his administration has passed. We are Agenda 21, hear us roar on our bicycles, scooters, free bikes, checkout electric sharing cars, and feet. If they don’t get us out of cars in 10 years, I will be amazed. We are headed to Manhattan one skyscraper at a time.

        • I think about you poor devils in the uprising county every time I go pepper snakes and wild pigs with the AK’s here. Soon as they register knives, nail-guns, and home-made thorium reactors, I’m sure I’ll be named a terrorist of some kind – or #meethreed into submission.

          for now, free’s how we like it.

  9. Indianapolis? WTF?

    Indy is actually a really nice town, compared to other comparably sized cities… As long as one ignores the fact that its downtown area is, like EVERY OTHER Midwestern city I’ve been in over the past two years, a frickin’ RE-construction zone. Tourist zone? Sure, but I can’t think of a reason to actually vaca there. Indy 500? You bet! NHRA Nationals? Sure. Various amateur and professional sporting events? Okay. Methodist Hospital has more than its share of top-tier orthopods and neurosurgeons (I still remember Rick Mears stacking it up in the Montreal GP, then being lifelined to Methodist Indy.) However, if one is not a sports fan or race car driver, it’s no more, and no less appealing than any other big city.

    Maybe the State Dept. likes the fact Indy residents are more like “traditional Americans” than the wacko Coasters, or they’re rewarding Indiana for their billions in budget surplusses…?

    • Okay, Mears was actually stabilized in Montreal before being flown to Indy in Penske’s jet, but that’s incidental to the point.

  10. I dated a chick from indy I met in the navy in Va Beach. Her name was Sandy, visited Carmel there once in vacation to see her. Super fun. Her aunt worked st the speed way and took me for a lap in her 76 Corvette stingray.

    Just got done schooling a few dozen fishies at glp. Lol some of them didn’t like me. Truth hurts! Lol

    All is well. Its official. I’m spoken for. Lol one woman man now. Feels good. It is somewhat exhausting being an out door kitty.

    Just checking in. I will start participating in the discussion part of ure site again.

    Have a great day!

    • Oh and she is a Ferrari. ;) George, you have mail. She looks better in person. I sh!t you not!

      Most like the last one I will ever get. Ha ha ha ha! Try to hold on to this one. Even if I have to play dumb. Ex wife number 1 said she was the most beautiful woman she had ever seen. Ex number 2 was stone cold faced. Eat your heart out b!tch.

      My Dad told me once a long time ago, success is the best revenge! He was right! Ha ha ha ha

      • I heard it from the paralegal (Dinah) when I went through my “buy a house” phase, lol. “Cool is the tool of the cruel” and “Living well is the best revenge…” Good common sense for both sides

    • Congrats, Andy! I’m amazed that you managed to get that far in six months – some of the rest of us are really slow learners. It’s Spring, so perhaps there’s a chance for all of us. Meanwhile I’m making my place presentable and fixing the A/C on the car.

      Happy future to both of you!

  11. The FED is the main problem that the USA has…The French invented the best remedy for the thinking heads of the Fed and the rest of the Keynesian’s it is called the GUILLOTINE…..this would be the correct start to a better monetary policy here and in the rest of the world….

  12. “Kim Jong-un was in China recently, is friendly with Russia and Iran…all as of late…quite annoyed with Trump. This has the smell of a hustle.”
    It sure could be!
    OR…
    The Donald is one smart cookie.. He seen negative subliminal on news stories from MSM.. Believe it or not Kim is one smart cookie as well as Putin and the leader of China.

    Peeking out of the box of known issues and response says this could be a what if or..what if Putin,Trump,Kim (who’s been battling the puppet masters trying to stop them from destroying his country and doing what they do best TAKE ) and China.. They may have noticed the same thing and realizing they’ve been played the fools decide to work together to stop the mad puppeteer.
    Just another thought of a possible reason everyone is working at mutual agreements.
    Consider that lately it seemed that the puppeteers were doing their best to ignite the world on a collision course for world destruction because Trump isn’t playing by their rules. Each of the leaders lives their countries and people and have been trying to do what’s best..
    Just another possible scenario besides the plot against trump.

    • Now.. From my perspective if I was one of the puppeteers that’s been using diabolical plots to undermine these leaders.
      Used MSM to rile up hate and discontent in order to put our nations on a collision course for mutual global destruction. Then I would personally wonder. Do they know? Will they now turn the tables on their tactics?.
      I personally think Trump,Putin,and the leader to China are honorable men Kim has been fairly radical and has done some brash things in the past. Then again he’s technically the small country. He had to to stop the puppeteers plans. He’s proven it doesn’t matter who you are if you mess with me, I will retaliate.
      They are all smarter than the average. Would I be concerned if I was a puppeteer? YES..I may be wrong..but then they may throw caution to the wind and roll the dice just to
      See if these leaders see what’s floating under the waters edge.

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