You ever see one of those movies where a really hopped-up car (usually with either a supercharger of nitrous injection system) is “lit up” with the wheel cranked over…and then goes around in tire-smoking circles?
That’s about as good a mental picture as it gets to explain what’s going on with the U.S. economy right now. We have a Fed that has stomped on the gas (the money supply) while holding the wheel over (unloading its balance sheet) while entertaining and sending a message to the viewer that Modern Monetary Theory work…and to prove it, we’ve turned on the nitrous…
The reason we can semi-confidently look for the market to go higher is the discontinuity disclosed in the latest Fed H.6 Money Stocks report. This weekly confessional takes a bit of reading to understand, but once you “get it” one aspect of investing becomes much clearer. Specifically, the old Marty Zweig rejoinder to “Never Fight the Fed.” So solid is his advice that it’s the #2 Stocking Stuffer this year (after a subscription to our www.peoplenomics.com site): Martin Zweig’s Winning on Wall Street.
Let’s tear into what the Fed has going on in the H.6:
There are two sliding windows reported each week. The earlier one covers through the end of October – which they muddle for the non-bankster priesthood by calling it “To November…” The key numbers to watch are the first line and the last. As you can see, through the end of October (above) the annual M1 was up 6.0 in the short-ter,m and 8.2 in the long-term. Let’s compare that with the more recent data:
In this view we noticed that M1 was gone from a 6% rate of increase to a 7.1% rate, In other words, they have stepped up money creation.
We can then look at the 52-week view of M2 (the broader measure of money) and see that a month and a half ago, it was being increased at a 4.7% rate and now it’s up to 4.9%.
What would worry the Fed, however, is that the short-term rate of rise for M2 has only gone from 3.5% annualized to 3.9…and that may not be enough for the illusion to hold up.
I see a hand?
“Yes, professor Ure: If the Fed really wanted to force rates us, why wouldn’t they just freeze the rates of increase…and some lower level…and then just let the market forces drive rates up?”
Ah…as savory a question as my filet mignon last night; with a dusting of Johnny’s Seasoning Salt (3 Pack) and a fresh-ground pepper medley with a side of….oh, wait, that’s for my next class…home ec!
The problem of the Fed is that if they don’t increase the money supply – and a good bit – that long-term M2 number will come down. As it does, the economy will cool and the Trump Bump will be over.
Already, there are lots of Social Security recipients – including Ure’s truly, who are pissed with how the FedGov is screwing us little people with double-talk and lies (our next topic). But the main thing is that with sacks of “assets” in the form of no-doc loans they need TONS of “easy money” so their assets can be sold off. And they enough money sloshing around so that people will spend, spend, spend.
That’s the “magic” of MMT (sadly, not the Mirac le Money Technique – which really works): We’re talking about what we proposed back in 2001 when the wreckage of the Internet Bubble collapse was all over these pages.
The simple answer (as we explained it then, and 16-years hasn’t revised the right answer): The Fed no doubt has a backroom with economists brighter than me who have modeled (like I did) and decided that the way to avoid a calamity (Second Great Depression) is to flood the world with money at just the right rate.
Oh, sure, in reality the forces of pernicious deflation are still at work. I mean, you can’t just wish the Economic Long Wave away. But, imagine if the 1929 experience had been different (because this is likely where we’re going, so pay attention):
What IF in 1928 the back-then Fed has printed the bejezus out of money. So much that the market would more than have doubled? Say the market quadrupled…
What would have happened then (done fast enough) we would have seen a CRASH alright, but because the price levels would have been back to something fairly recent (like 1928 prices), it would be simple to maintain control and “talk-through” the problem.
What A Super Blow-off Could Look Like
This is really “thinking the unthinkable out loud” but here goes:
Suppose the Fed noticed as we have pointed out that the Bond Market isn’t playing ball with the Rate Hike Illusion? Remember, going into the rate hike,, the 10-year Treasury wasn’t intimidated. In fact yesterday the 10-year note fell again!!! Down to 2.35%.
What’s happening right now (and it’s hard to wrap your head around it) is that we in effect now have two interest rates.
One is the nonsense the Federal Reserve talks about. The OTHER is the one my deflationist pal Jas Jain cited – which is the REAL interest rates which are down around 2.35% now. Jas, by the way, expects a market decline in 2018 and is back into bonds realizing that despite the Yellen yellin’ their is too much “money” out there and rates will stay low.
A lot of people won’t comprehend this: But for those who do, the answers are pretty simple: Watch two sets of indicators and try to figure when it all hits the fan.
As the rate of rise in the stock market (and Bitcoins which we expect over $18,000 by Christmas and maybe $30,000 by February (at these rates) stocks will continue toward lunar orbit. Think 2,800 and higher and possible on the S&P.
At the same time, however, the Fed will talk-through as best they can. ]
What’s missing is that “oldie but goodie” called M3. it’s a much broader measure of the economy and sadly Alan Greenspan whacked that because it made playing “Follow the dancing Fed’s lead” too easy. People were able to “bet with the house” and that tended to speed up the social escalator. Not something you want if you’ve already got a home in the Hamptons.
That’s our “thinking point” today: What would have happened in 1929 if instead of actually tightening – which we know made the Great Depression greater, the Fed were to go the other way…and print and flood while talking the inflation side?
We know inflation is coming back…but will it be enough to ensure that we don’t eventually get to the wash-out (and negative rates anyway)? A fine question. But it’s one that if you still own a home that’s paid-for, you don’t really need to answer. If you’ve got five years of taxes in dependable assets? That will get you to the timeline front porch of World War III. If there’s a tax collector on the backside of that…let us know.
The Social Security Screw-Job
I got my annual benefit change notice in the mail this week – and it’s another fine example of government double-talk, or more correctly government double-cross.
Here’s how the game is played.
Social Security gets adjusted for what? Inflation.
So the top line went up as it’s supposed to.
Here’s the gotcha: The Medicare expense went up much faster than inflation.
As a result, the Ure household didn’t get anywhere near the REAL inflation as reflected in the latest CPI data out this week.
Had it done so, we should have seen a rise in take-home of 2.0 percent (roughly).
Instead, by jacking up medical costs, our net increase is 1.19%. Looking at the Food costs in the CPI (up 1.4%) we should still be able to eat. But with energy up 9.4%, we expect to be colder in winter, hotter in summer, and not going anywhere!
Do I sound bitter? Who, me? Naw…I never planned on SS anyway but it does beat scratching dirt and selling onions..
Hollywood Pay Dirt
You need to flip over to Variety for today’s latest installment of the entertainment world in collapse as “Dustin Hoffman Accused of Exposing Himself to a Minor, Assaulting Two Women (EXCLUSIVE).”
The “Iffy” Mainstream Media
After revelations that a couple of key DOJ/FBI types were plotting to stop Donald Trump from winning the White House, please notice today how many of the MSM puppets have had their strings pulled by the Deep State to say things like “Oh, these people were entitled to their opinions…” and other such pap.
Fact is, when DOJ employees on government time plot in ANY way involving political figures it’s a Hatch Act violation and many of our readers have bandied the word “treason” about, as well.
Today, notice how the Deep State has orchestrated the “walk-back” stories. Try “DOJ now says early release of FBI agents’ private texts to reporters was ‘not authorized’ by the department.” for starters.
Ure, for one, thinks all employees of Justice and the FBI should abstain from voting during their tenure. Just like some A.P. reporters (and me) back in the day didn’t vote in order not to have “skin in the game.”
I may go back to that, all the good voting has done…
Nowadays, reporters and officials are all fundraising partisans, seems like…
Tax Bill on Ice?
Thin ice at that as Marco Rubio may not be “sold” on the contents.
I haven’t figured if this is a plot to hold up the lobbyists for more “support” but it’s clear from reports like “With Billions at Stake in Tax Debate, Lobbyists Played Hardball” that America isn’t run by Americans anymore.
It’s bought and sold by Washington “law firms” who can deliver anything the corporates want, given enough time and money. Am I the only one who read Jack Abramoff’s book Capitol Punishment: The Hard Truth About Washington Corruption From America’s Most Notorious Lobbyist?
In today’s world, a better question might be “Am I the only person left who can read more than 200 characters?
I’m not kidding…Zeus the cat has a longer attention span. We should be feeding kids mice instead of drugs….
GOP Sellouts: Stealing the Net
Speaking of crooked: Your Internet has just been stolen thanks to the clown posse led by Ajit Pai at the FCC. The FCC just killed net neutrality.
Credit to Obama here: This is one of the few things his administration got right. Wrong on open borders, unmasking, trying to get Trump embroiled in the Russia narrative…but THIS one they got right.
Not that it matters: The media is complicit.
I have a bone to pick pick on media coverage. Take the story by Josh Barro of Business Insider who claims “If Net Nonneutrality turns into disaster, we can reverse it.” Oh? Outbid corporate interests that have more money than the Almighty Itself?
No, kids. This muddled thinking is tantamount to saying “If we give the Mafia control of the web, we can always get it back.” Good luck with that.
WTFU. This read like the handiwork of corporate happy-talkers who have already overthrown democracy…(In fairness, for the reporter the flip side is access, but it’s a deal with the devil, especially in a press release-driven world.) I did mention the Abramoff book, right?
This is why I’m so skeptical of younger reporters. (And all of ’em are these days, come to think of it).
This is quadruple witching day. Quarterly, bonds, yada, yada.
Empire State Manufacturing data from the NY Fed just out:
“Business activity continued to grow at a solid clip in New York State, according to firms responding to the December 2017 Empire State Manufacturing Survey. The headline general business conditions index, at 18.0, remained close to last month’s level. The new orders index and the shipments index both showed sustained strong gains, with the former holding steady at 19.5 and the latter edging up to 22.4. Delivery times were slightly longer than last month, and inventory levels were stable.”
Going into the open the Dow futures are up another 90, S&P also set to rise. Bitcoins are nearing $17,700.
What could possibly go wrong?