Tag Archives: FOMC

Powell Just Signaled That The Next Crisis Is Here

Housing and auto sales appear to have hit a wall over the last 8-12 weeks.  To be sure, online holiday sales jumped significantly year over year, but brick-n-mortar sales were flat. The problem there:  e-commerce is only about 10% of total retail sales.  We won’t know until January how retail sales fared this holiday season.  I know that, away from Wall Street carnival barkers, the retail industry is braced for disappointing holiday sales this year.

A subscriber asked my opinion on how and when a stock market collapse might play out. Here’s my response: “With the degree to which Central Banks now intervene in the markets, it’s very difficult if not impossible to make timing predictions. I would argue that, on a real inflation-adjusted GDP basis, the economy never recovered from 2008. I’m not alone in that assessment. A global economic decline likely started in 2008 but has been covered up by the extreme amount of money printed and credit created.

It’s really more of a question of when will the markets reflect or catch up to the underlying real fundamentals? We’re seeing the reality reflected in the extreme divergence in wealth and income between the upper 1% and the rest. In fact, the median middle class household has gone backwards economically since 2008. That fact is reflected in the decline of real average wages and the record level of household debt taken on in order for these households to pretend like they are at least been running place.”

The steep drop in housing and auto sales are signaling that the average household is up to its eyeballs in debt. Auto and credit card delinquency rates are starting to climb rapidly. Subprime auto debt delinquencies rates now exceed the delinquency rates in 2008/2009.

The Truth is in the details – Despite the large number of jobs supposedly created in October and YTD, the wage withholding data published by the Treasury does not support the number of new jobs as claimed by the Government. YTD wage-earner tax withholding has increased only 0.1% from 2017. This number is what it is. It would be difficult to manipulate. Despite the Trump tax cut, which really provided just a marginal benefit to wage-earners and thus only a slight negative effect on wage-earner tax withholding, the 0.1% increase is well below what should have been the growth rate in wage withholding given the alleged growth in wages and jobs. Also, most of the alleged jobs created in October were the product of the highly questionable “birth/death model” used to estimate the number of businesses opened and closed during the month. The point here is that true unemployment, notwithstanding the Labor Force Participation Rate, is much higher than the Government would like us to believe.

Fed Chairman Jerome Powell signaled today that the well-telegraphed December rate hike is likely the last in this cycle of rate-hikes, though he intimates the possibility of one hike in 2019. More likely, by the time the first FOMC meeting rolls around in 2019, the economy will be in a tail-spin, with debt and derivative bombs detonating. And it’s a good bet Trump will be looking to sign an Executive Order abolishing the Fed and giving the Treasury the authority to print money. The $3.3 billion pension bailout proposal circulating Congress will morph into $30 billion and then $300 billion proposal. 2008 redux. If you’re long the stock market, enjoy this short-squeeze bounce while it lasts…

A Large Decline In Stocks Accompanied By A Huge Move Up In Gold

Elijah Johnson invited me onto the Silver Doctor’s precious metals podcast to discuss why mining stocks are historically cheap and why an expected crash in the stock market will be accompanied by a soaring precious metals sector.   We also discuss why Trump is beating up the Fed over rate hikes:

Note on my Mining Stock Journal. I mentioned a highly undervalued intermediate gold and silver producer in the podcast. I also want to note that occasionally I issue “sell” or “avoid” recommendations. I happened to notice yesterday that Novo Resources was below $2.  A year ago I strongly urged my subscribers who owned Novo  in my October 19, 2017 issue to sell the shares when the stock was above $6. Here’s what I said:

I am following this saga with fascination because it’s a great study in mass crowd psychology and investing. It blows my mind that this stock can have a $1.3 billion market cap with almost no evidence of a mineable resource other than small, pumpkin-size “seeds” of gold samples. I exchanged emails with my junior mining company insider to get some interpretation of the results and affirmation of my view: “These nugget deposits are very difficult to model and drive mining engineers absolutely nutz! This is what happened with Pretium’s first shot at a published resource at the Brucejack project in BC. The gold is coarse and not equally and predictably distributed, so the consultant had a very difficult time modeling the deposit and therefore coming up with an agreeable resource estimate.

You can learn more about the Mining Stock Journal here:  Mining Stock Journal information

The Tragically Flawed Fed Policies And The Eventual Reset Of The Gold Price

With gold showing good resiliency as it has tested the $1200 level successfully after enduring aggressive paper gold attacks during Comex floor trading hours, it’s only a matter of time before gold breaks out above $1220 and heads toward $1300. Gold has been under attack in the futures market this week as the world’s largest physical gold importer, China, has been closed all week for holiday observance. In addition, with financial market conditions stabilizing in India, the world second largest physical gold importer’s peak gold buying season resumed this week. When gold spikes over $1220, it will unleash an avalanche of short-covering by the hedge funds.

What will cause gold to spike up? There’s any number of potential “black swans” that could appear out of nowhere, but the at the root of it is the tragically flawed monetary policies of the Federal Reserve, along with the rest of the Central Banks globally…of course, the eastern hemisphere banks are buying gold hand-over-fist…

Chris Marcus invited me onto this StockPulse podcast to discuss the precious metals market and the factors that will trigger an eventual price-reset:

The Fed: Lies, Propaganda And Motive

The agenda of the Fed is to hold up the system for as long as possible. The biggest stock bubble in U.S. history has been fueled by 10 years of negative real interest rates. The only way to justify that policy is to create phony inflation statistics. Based on historical interest rates and based on the alleged unemployment rate, a “normalized” Fed funds rate should be set at 9%, which reflects a more accurate inflation rate plus a 3% premium. The last time the unemployment rate was measured at 3.7% was October 1969. Guess what? The Fed funds rate was 9%. I guess if you live an a cave and only buy TV’s and laptops, then the inflation rate is probably 2%…

Silver Doctor’s Elijah Johnson invited me to discuss the FOMC policy decision released on Wednesday afternoon:

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If you are interested in ideas for taking advantage of the inevitable systemic reset that  will hit the U.S. financial and economic system, check out either of these newsletters:  Short Seller’s Journal information and more about the Mining Stock Journal here:  Mining Stock Journal information.

Trump’s Fed Comments Sends Gold Soaring

Last week Donald Trump broke the theoretical “Chinese Wall” that is supposed to exist between the Government and the Fed when he offered a stunning rebuke of the Fed’s current policy to continue raising interest rates. Though, it’s really more like “nudging” rates up at a snail’s pace.

Gold shot-up in price immediately after Trump’s ill-advised comments recorded on CNBC it the tape, more than offsetting a vicious sell-off in the gold price that occurred in the paper derivative gold markets in London and New York.

The Office of Management and Budget further revised higher its Federal spending deficit forecast for FY 2018.  The original forecast was under $500 billion.  The latest forecast is nearly $900 billion.  Without a doubt, we believe the spending deficit will top $1 trillion this year.

The point of this is that Trump’s remarks were likely directed at pushing the dollar lower as part of the escalating trade war.  That, combined with a Government budget that will soon spiral out of control – and thereby necessitate a flood of new Treasury issuance – will likely force the Fed to reverse course on its monetary policy which in turn will send gold soaring in price.  We explain why on the latest episode of, WTF Just Happened (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

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You can take advantage of undervalued junior mining stocks using the Mining Stock Journal. OR learn how my subscribers and I are making a small fortune shorting the housing market, as homebuilder stocks are already in bear market, with the information and analysis provided in the Short Seller’s Journal. This week’s Short Seller’s Journal also discusses the coming demise of Tesla and how to best play it from the short-side.

Paul Craig Roberts: “How Long Can The Federal Reserve Stave Off the Inevitable?”

IRD Note: The average household is bloated with debt, housing prices have peaked, many public pensions are on the verge of collapse in spite of 9-years of rising stock, bond and alternative asset values. But all of this was built on a foundation of debt, fraud and corruption. Dr. Paul Craig Roberts asks, “does the Fed have another ‘rabbit’ to pull out its hat?…

When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the US consumer market, the products are classified as imports from China.

Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of US imports from China consist of the offshored production of US corporations. Offshoring is a substantial benefit to US corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many—the former American employees who formerly had a middle class income and expectations for their children.

In my book, I cited evidence that during the first decade of the 21st century “the US lost 54,621 factories, and manufacturing employment fell by 5 million employees. Over the decade, the number of larger factories (those employing 1,000 or more employees) declined by 40 percent. US factories employing 500-1,000 workers declined by 44 percent; those employing between 250-500 workers declined by 37 percent, and those employing between 100-250 workers shrunk by 30 percent. These losses are net of new start-ups. Not all the losses are due to offshoring. Some are the result of business failures” (p. 100).

In other words, to put it in the most simple and clear terms, millions of Americans lost their middle class jobs not because China played unfairly, but because American corporations betrayed the American people and exported their jobs. “Making America great again” means dealing with these corporations, not with China. When Trump learns this, assuming anyone will tell him, will he back off China and take on the American global corporations?

The loss of middle class jobs has had a dire effect on the hopes and expectations of Americans, on the American economy, on the finances of cities and states and, thereby, on their ability to meet pension obligations and provide public services, and on the tax base for Social Security and Medicare, thus threatening these important elements of the American consensus. In short, the greedy corporate elite have benefitted themselves at enormous cost to the American people and to the economic and social stability of the United States.

The job loss from offshoring also has had a huge and dire impact on Federal Reserve policy. With the decline in income growth, the US economy stalled. The Federal Reserve under Alan Greenspan substituted an expansion in consumer credit for the missing growth in consumer income in order to maintain aggregate consumer demand. Instead of wage increases, Greenspan relied on an increase in consumer debt to fuel the economy.

The credit expansion and consequent rise in real estate prices, together with the deregulation of the banking system, especially the repeal of the Glass-Steagall Act, produced the real estate bubble and the fraud and mortgage-backed derivatives that gave us the 2007-08 financial crash.

The Federal Reserve responded to the crash not by bailing out consumer debt but by bailing out the debt of its only constituency—the big banks.

Click here to read the rest: Paul Craig Roberts/Fed

A Massive Bubble In Retail Stocks

Retail, especially the “concept” retailers, are going parabolic. It makes no sense given the declining rate of personal consumption, retail sales, etc. The kinkiest names like RH, RL and W are going up like the dot.com stocks went up in late 1999/early 2000. The move in these stocks reflects either mindless optimism or momentum-rampaging by hedge fund bots – or both. The hedge fund trading flow can turn on a dime and go the other way. I suspect this will happen and, as it does, squeeze even more mindless optimism out of the market.

The cost of gasoline has to be hammering disposable income for most households. On top of this is the rising cost of monthly debt service for the average household.  Non-essential consumerism is dying on a vine.

Fundamentally the retail sector is not recovering. If anything, the economic variables which support retail sales are deteriorating. I think some of the shares caught a bid on better than expected earnings derived from the one-time bump in GAAP non-cash income from the tax law changes reported by numerous companies in Q1. I just don’t see how it’s possible, given the negative wage, consumption, credit and retail sales reports that the sector has “recovered.”

In just the last eight trading days, XRT has outperformed both the Dow and S&P 500 by a significant margin. It has all indications of a blow-off top in process. You can see that, with industry fundamentals deteriorating, XRT’s current level now exceeds the top it hit at the end of January, which is when the stock market drop began. The RSI has run back into “overbought” status.

Some of the “kinkiest” retail concept stocks, like Lululemon (LULU), Five Below (FIVE) and Restoration Hardware (RH), soared after reporting the customary, well-orchestrated GAAP/non-GAAP earnings “beat.”  Of course, RH’s revenues declined year over year for the quarter it just reported.  But it used debt plus cash generated from reducing inventories to buyback $1 billion worth of shares in the last 12 months.  Yes, of course, insiders greedily sold shares into the buybacks. (Note: If insiders were working for shareholders other than themselves, companies would pay large, one-time special dividends to ALL shareholders rather than buyback shares to goose the stock price)

The retail stocks are setting up a great opportunity for bears like me to make a lot of money shorting the most egregiously overvalued shares in the sector.  Timing is always an issue.  But complacency has enveloped the stock market once again, as hedge funds have settled back to aggressively shorting volatility.

It won’t take much to tip the market over again.  Only this time around I expect the low-close of February 8th (2,581 on the SPX) to be exceeded to the downside by a considerable margin.

The above commentary was partially excerpted from the the latest issue of the Short Seller’s Journal.  It’s not easy shorting the market right now – for now – but there have been plenty of short-term opportunities to “scalp” stocks using short term puts. I cover both short term trading ideas and long term positioning ideas.  You can learn more  about this newsletter here:  Short Seller’s Journal information.

 

Does Larry Kudlow Fear Gold?

One of the first comments about the economy from Larry Kudlow after his appointment as Trump’s chief “economic” advisor was to advise anyone listening to “sell gold.”   But why?  Gold is irrelevant in the United States.  Very few Americans care about silver and even less care about gold.  So why bring attention headline attention to gold?

The simple, if not obvious, answer is that gold is the number one threat to the U.S. dollar. It’s the antithesis of gold.  For a born again Catholic like Kudlow, gold is the anti-Christ.

Silver Doctors invited me onto its weekly Metals and Market Wrap show to discuss the February employment report, the appointment of Larry Kudlow and, of  course, gold and silver:

Use these links if you are interested in learning more about IRD’s   Short Seller’s Journal or Mining Stock Journal.   Many of my short sell and junior mining stock ideas have been successful despite the lofty stock market and sideways trending precious metals market. I review both short and longer term trading/investment ideas in each issue.

The supply of gold, unlike paper money, is limited. Alchemists have tried for centuries to turn other metals into gold — but have never succeeded. Gold is a beautiful metal on its own and the lust for gold seems to be built into the DNA of mankind. If you own ten thousand ounces of gold, you can say that you will ALWAYS be wealthy. – Richard Russell

More Evidence That The Fed And Big Banks Collude?

Should this surprise anyone?

An interesting study by a Phd candidate at the University of Chicago is being released which shows a statistically high incidence in taxi trips between the NY Fed and big NY banks clustered around FOMC meetings:

Mr. Finer writes that “highly statistically significant patterns in New York City yellow taxi rides suggest that opportunities for information flow between individuals present at the New York Fed and individuals present at major commercial banks increase around” meetings of the interest-rate setting FOMC.

“Their geography, timing and passenger counts are consistent with an increase in planned meetings causally linked to the incidence of monetary-policy activities,” he wrote. “I find highly statistically significant evidence of increases in meetings at the New York Fed late at night and in off-site meetings during typical lunch hours,” which is suggestive of “informal or discreet communication.”

“As reported by the Wall St. Journal, but curiously absent from Fox Business reporting – both organizations are owned by Rupert Murdoch – Mr. Finer used government-provided GPS coordinates, vehicle information and other travel data to track taxi traffic between the addresses of the New York Fed and major banks. His research pointed to increased traffic between the destinations around lunch and late evening hours, which suggested informal meetings were taking place, Mr. Finer wrote in his paper. He found elevated numbers of rides around Federal Open Market Committee meetings, with most of them coming after the gathering.” (WSJ)

This should not surprise anyone. It actually makes sense. The Fed is owned by the Too Big Too Fail banks and, without question, have an inordinate amount of influence on Fed policy.

You can read the entire article here: Increase in Fed/NY Bank Meetings Around FOMC Meetings.

 

Powell Is Not An Economist – And The Fed Is Not Tightening Monetary Policy

Fed Head, Jerome Powell, is not an economist. He’s a politician who made a lot of money at the Carlyle Group. He has an undergraduate degree in politics and went to law school. After working for awhile as a lawyer at a big Wall St. firm, Powell migrated to investment banking at Dillon Read. Powell must have built a relationship with Nicholas Brady at Dillon Read, because he jumped from Dillon Read to positions in Brady’s Treasury Department under George H. Bush. From there he took an ill-fated position at Bankers Trust and was somehow connected to the big derivatives scandal that eventually forced BT into the arms of Deutsche Bank. Information about Powell’s role at BT have been cleansed from the internet but he resigned from BT after Proctor & Gamble filed a lawsuit that exposed a large derivatives scandal.

The point of this is that it would be a mistake to analyze anything Powell says in his role as Fed Head as anything other than the regurgitation of previous oral flatulence emitted by Bernanke and Yellen. First and foremost, Powell’s agenda will be to protect the value of private equity investments at firms like the Carlyle Group. In this regard, Powell’s wealth preservation interests should have precluded him from assuming the role of Fed Head. Then again, he’s not an economist. The last Fed Head who was not a trained economist was G. William Miller, appointed by Jimmy Carter in 1978. How well did that work out?

While many “analysts” have looked to statements made by Powell in 2012 that expressed a somewhat “hawkish” stance on monetary policy, it’s more important to watch what the Fed does, not says. Since the balance sheet reduction process was supposed to begin starting in October, the Fed’s balance sheet has been reduced from $4.469 trillion as October 16, 2017 to $4.458 trillion as of February 21. “Qualitative tightening” of just $11 billion. This is well behind the alleged $10 billion per month pace that was established and highly promoted by the Fed, analysts and the financial media.

Powell stated to today that the Fed will continue with “gradual rate hikes.” What does this mean? Over the last two years and two months, the Fed has implemented five quarter-point rate “nudges.” Less than one-half of one percent per year. Since 1954, the Fed Funds rate has averaged around 6%. This would be a “normalized” Fed Funds rate. Based on the current rate of Fed Funds rate “hikes,” it would take six years from December 2015, when the “rate nudges” commenced, to achieve interest rate “normalization.”

But here’s why it will like take a lot longer and may never happen:

The chart above shows the dollar amount of consumer debt that is in delinquency. It was $33.3 billion as of the end of Q3 2017. It is at the same level as it was in Q2 2008. The data is lagged. I have no doubt that is likely now closer to $36 billion, which is where it was in Q3 2008. If anything, we will eventually see “faster-than-gradual” drops in the Fed Funds rate.

With Government, corporate and household debt at all time highs, and with delinquency rates and defaults escalating quickly – especially in auto and credit card debt – the only reason the Fed would continue along the path of tightening monetary policy as laid out – but not remotely adhered to – over two years ago, is if for some reason it wanted blow-up the financial system. Au contraire, hiking rates and shrinking the Fed’s balance sheet is not in the best interests of the Too Big To Fail Banks or the net worth of Jerome Powell.