The System Will Implode When Central Bank Intervention Fails

The economic reports released this morning added to the near-continuous flow of information reflecting a U.S. economy that is likely contracting, for the most part.  Perhaps the only “fundamental” variable not contracting is the hot air coming from the Fed.

In today’s release of its “services” PMI, Markit explains:  “The US economy is going through its worst growth spell for three and a half years…and the worst may be to come as the greatest concern is the near-stalling of new business growth.”

The core durable goods new orders index released today dropped for the 13th month in a row – Zerohedge points out that it is the longest “non-recessionary” stretch of consecutive monthly drops in 70 years.

In fact, a good argument can be made that if a bona fide rate of inflation was applied to the Government’s GDP calculations, the U.S. economy has not produced real, inflation-adjusted economic growth since 2006.  Review the work of John Williams’ for evidence of this fact.

The Swiss National Bank admitted that it has spent $470 billion on currency manipulation since 2010.  Given the Fed’s refusal to disclose any information about its currency swap programs – including denying all FOIA requests on this matter – there can be no doubt that the Fed has been actively funding the SNB’s endeavors. The same goes for the SNB’s huge U.S. stock portfolio, which includes insanely overvalued gems like AAPL and AMZN.

We are witnessing the western Central Banks’ last gasp at preventing total systemic collapse.  The Fed et al were able to defer this event in 2008 with many trillions of direct money printing – deceptively marketed as “Quantitative Easing” – and many more trillions of direct Government income and spending subsidization.  After all, a Government willing to underwrite and guarantee 3% down payment, subprime credit mortgages is creating nothing more than a form of “helicopter money” dressed in drag.

A reader who is a self-professed real estate expert took issue with my blog post the other day in which I stated that the housing market is tipping over now.   He said: “Until proven otherwise, the U.S. housing market is still alive and well right now – and Denver is still doing very well too!”

Quite an assertion given that his opinion is based almost solely on the corrupted data produced by the National Association of Realtors (I refer you to one of several blog posts in the  past in which I demonstrate in detail why the NAR data is highly flawed, if not intentionally fraudulent to some degree).   To which I responded:

We’ll have to agree to disagree. Despite the propaganda, prices have been falling in Denver since last summer. Inventory is going through the roof. The “bubble” neighborhoods everywhere in metro-Denver are starting to look like they did in 2008, littered with for sale and for rent signs. I’m not sure where your “Denver” data is coming from but I conduct actual “boots on the ground” due diligence. I am getting emails from readers in Florida, DC/Virginia, NY and other regions describing the same thing I’m seeing in Denver.

The NAR data is highly manipulated. Yr over yr SAAR is useless as is the NAR data collection methodology. The “seasonal adjustment” regression program is the same program the Government uses in its data manipulation scheme.

At the lower end of the spectrum, we are seeing the last fumes of a regenerated subprime mortgage bubble sponsored by FNM/FRE/FHA/VHA/USDA. Yes, the USDA, which sponsors 0% down pmt mortgages in “rural” areas where “rural” turns out be the outermost suburban band of most MSA’s. Were you even aware of that?  There’s also been a “last gasp” surge in investor/flipper volume. They will be stuck holding the bag on homes they can’t sell or rent, just like in 2008.

My point in all of this is that the only “trick” left in the Fed’s bag right now is direct intervention in the stock market.   It’s a last gasp effort in an attempt to generate a “confidence” and “wealth effect” dynamic.  Hey, if the stock market isn’t going down things can’t be that bad, right?

The problem is that, for the most part, the world can no longer absorb any more credit expansion. We’re seeing this in the U.S. with the rapidly rising delinquency rates for auto and student loans, soon to be followed by another round of mortgage delinquency/defaults.

The Fed knows this and that’s why it continues to defer raising rates despite the constant barrage of threats to do just that at “the next meeting.”  Even the boy who cried “wolf” is blushing on behalf of the Fed.  I believe that the Fed’s inability to inflict a meaningful price take-down of gold and silver – especially silver – may be an indication that the Fed’s manipulative powers are beginning to atrophy.

It’s likely that this latest bear market bounce in stocks – the one for which Jim Cramer has ceremoniously proclaimed “a new bull market” – is going to start tipping over.  It won’t happen all at once but it will likely lead to yet another “waterfall” drop in the S&P 500.  Incredibly, the last two times around witnessed an incredible amount of screaming from the “peanut gallery” for the Fed to do something in response to just a 10-15% drop in stocks.  Bear markets typically don’t end until stocks have dropped 60-90%.

At some point the Fed will be completely helpless to prevent the market from going lower. That’s the point at which the system will collapse.  In my upcoming issue of the Short Seller’s Journal, I outline why I believe both oil and stocks are getting ready to head down the roller coaster tracks once again.  I have an idea that will capitalize on another move lower in oil plus accelerating defaults in the energy sector.  Subscribers also received an update email last night that presented a stock that I think is getting ready to experience an “elevator shaft” drop.  This company’s accounting is more misleading than Amazon’s, if that’s possible.

The Fed has been working overtime to hold up a stock market that is the most overvalued in U.S. history based on using traditional GAAP earnings.  My Short Seller’s Journal will help you find stocks that will ultimately fall at least twice as much as the overall market, either because of misleading accounting that gets exposed or rapidly deteriorating fundamentals, or both.  (click below to subscribe)


10 thoughts on “The System Will Implode When Central Bank Intervention Fails

  1. Another data point for you on the RE front Dave: I sold my home (in SW Ohio) this time last year. I listed it on Zillow with no realtor involvement. I reduced the price of the house by the imputed cost savings of not having a realtor -every one of which I ever met was a useless bullshitter. I had a contract in less than two weeks. The millennial couple who bought it (btw, a lot of house for a young couple) put NOTHING down. At closing I noticed their mortgage was about 103% LTV. The VA charges all kinds of fees and the buyers just rolled most of them up into the mortgage. On top of his 103% LTV note he still had to come up w/ 7 or 8 grand for other silly financing fees and pre-paids.

    Anyway, I priced my house to sell and it sold -quickly. Some of my neighbors were greedy and listed theirs with useless realtors asking ‘mkt prices’ and they are STILL sitting unsold. On top of that, 3 builders built spec homes last summer and all 3 of those are also sitting unsold.

    What is going to happen when/if interest rates ever normalize?

    1. Great color! Keep them coming people. Nothing like “boots on the ground” facts to confront the manipulated data and propaganda with.

  2. “At some point the Fed will be completely helpless to prevent the market from going lower. ”

    I assume in this context you are using the term “the Fed” to include what the Federal Reserve is doing in consortium with the Federal Government?

  3. I realize we’re beyond any reasonable chance of fixing the mess we’re in, but at least here in Seattle there’s a rejection of Hillary going on. I caucused for Bernie downtown this morning because I can’t stomach the thought of a Clinton presidency… our precinct vote was 93 – 27 for Sanders. Up on Capital Hill the vote at my friend’s precinct was 78 – 24 for Bernie.

  4. I think this is a brief but still fairly definitive article on the topic. Starting with the title and continuing with statements like “My point in all of this is that the only “trick” left in the Fed’s bag right now is direct intervention in the stock market.”

    I don’t know what hard evidence there is that the Federal Reserve [with the U.S. Treasury et al] is buying and otherwise manipulating the stock markets; that isn’t something I could know. But the plunge protection team to my knowledge has this intervention on their radar; they don’t probably don’t consider ANYTHING off limits or sacrosanct.

    Can they prevent a “waterfall” precipitous decline [crash] of the markets? I do think they can slow the rate of decline in value. At least for a while. Since they will pull out all stops and try tricks they never did in 2008/2009, only time will tell what and how much they can forestall.

    I’d like others’ thoughts on this.

    1. I think they can forestall the collapse for as long as they want. I think it will be an engineered collapse and happen in conjunction with war outbreak, or other significant political change. They still have a lot of runway left. They will eventually inform people they need to take extreme measures. That hasn’t happened yet by a long shot. Then we have all the runway being used for those extreme actions to see if they can arrest a decline. We are just getting going, but the day will come when it all starts happening faster and faster, and when they let the bottom drop out, that is when we have war and the police state tries to clamp down on the population. Good luck with all that…

      1. I think there’s will be a financial bomb that explodes that they failed to anticipate – like the AIG / Goldman bomb. At the end of the day, the Fed can only anticipate what it knows. Bank CEO’s lie their ass off about everything, including the truth about their off-balance-sheet issues. This includes lying to the Fed. Something will blow up that the Fed was unaware of. Could be energy-related.

        1. Mish and sober friends think it’ll be just a “pain trade,” a slow grind down with no crashing.

          “The “pain trade” is a prolonged downturn of 30-40% with numerous intermittent sucker rallies as round after round of trained dip buyers get punished. There are lots of people predicting crashes now, far too many for my tastes.”

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