Friday, September 14, 2012

Timely Remarks About This Week’s Federal Reserve & Economic Announcements–Is Failure Imminent?

First off, employment numbers this week were horrible.  As too were unemployment numbers.  This confirms what I have been writing for a few months now - money is draining out of the global economy at a faster rate than leading up to the 2008 collapse and corporate balance sheets are deteriorating at the fastest rate since this crisis visibly started twelve years ago.

If you are looking at M1 or M2 money aggregates as a sign of economic health or inflation, you are being deceived.  Or, if you are following economists, bloggers or anyone else who are pointing to the massive swell in these numbers as signs that we have plenty of money or even too much money in the system, you need to get away from this thinking as I noted before on here.   In that video I posted of Detroit yesterday, how many of those people were getting any of that money growth?  By the way, the only number that matters is M1.   M1 is what you use to pay your bills.  And, by the way, without going into detail, as I have in the past, housing and retail sales mean almost nothing.  They will not lead us out of this crisis.  And, they are not signs of whether the economy is recovering.  People who cite them as positive signs, including the Fed in their statement yesterday, literally have no idea what they are talking about.   Housing and the consumer cannot lead us out of this crisis.  To not understand this is to not understand basic economics.  Yet this nonsense is repeated everywhere.

I am very dubious this round of Fed easing will accomplish anything.  The Fed views its abilities to be well beyond what they actually are.  They have confused correlation with causation.  There is no doubt the Fed saved our banking system from a criminal collapse in 2008.  I completely support and supported that.  But then the oligopolies should have been broken up and wrongs prosecuted.  QE1 and QE2 worked to some substantial degree because emerging economies were still roaring and Europe was still doing well at QE1.  But really what can Bernanke point to that these programs actually worked?  Higher stock prices are about it.  Oh, and higher food and energy prices that are killing exploited classes of people around the world.   As I have noted countless times on here, U.S. stocks are 3-4x more expensive than they were in the 1929 bubble that popped with a 95% collapse.   That Bernanke’s policies keep pushing assets into the stratosphere is not a sign that his policies are working.  The minute they are withdrawn or fail to work, assets will collapse.  His policies only give an illusion.  Just like the illusion of wealth the Fed enabled in the housing and internet bubbles. 

Today Russia, China, Brazil, India, Australia, Canada, Japan and Europe are all in economic trouble.  And, after writing that this day would come for seven years, it’s finally here.   Is it here to the day?  Who knows.  Central bankers and politicians could spend even more money to save their cronies so it could be six months from now.  But I doubt it.  Seriously.    There are now outward measurable signs that all of these countries have overheating, stalled or collapsing economies.   No one else has been writing of this day since before the 2008 collapse.  And, that means no one is going to get right what happens next because they didn’t understand what was happening in the global economy in the first place.   Capitalism is dead.

So, QE1 and QE2 worked for one primary reason.  That is, to some degree the global economy was still functioning.  Global corporations control the money supply in our nation.  Not just banks.  But nonfinancial corporations as well.  Big corporations have done well because of their exposure to globalization and that has allowed them to mint money that is then, even if partially, repatriated to the U.S.  Or, they have sold goods and services to other domestic corporations exposed to globalization who have the money to buy such products.   As long as that dynamic is working, some modicum of money is available to keep the U.S. economy semi-stable.  That then supports spending into merchant class businesses and consumption items domestically.  These global trade agreements were set up because as of the mid 1970s, U.S. corporations and elites had successfully looted as much as they could in the U.S. and they needed other markets to loot.  Ronald Reagan was just the man they needed.  He almost completely deregulated capital.  (The reason why we had a massive criminal S&L crisis under Reagan and union busting gained enormous critical mass.)  Globalization is simply multinational corporations and elites (the investor class), mostly U.S., looting the world. 

The real damage to China was done back in 2008 when over 100,000 factories closed. (How many?  We don’t actually know.)  That means any new Chinese stimulus will simply fuel a larger consumptive inflationary bubble before ultimate collapse.  A guest was recently on Tout TV stating that the wheels were coming off of the Chinese economy.  He cited electricity production as stagnant and that the Chinese economy most certainly was at a point of zero growth.   Think about that.  Every single person in the financial community in the U.S. was at one time or another hoodwinked by the China myth.  Every single one.  Some woke up.  Most haven’t. (The same situation is going to happen with anthropogenic global warming because people simply believe what they are told rather than actually thinking for themselves.  The human mind is designed to be lazy.  To take shortcuts in processing when it can.  One such shortcut is believing what we are told.)

I don’t follow electricity production in China because I have to pay for that data.  But, I really don’t need to.  There are other data points that anyone can gain access to.  Some industrial metals prices in China have hit all-time lows.   You read that right.  Now, all time is since they opened their economy to looting under an agreement forged by Bill Clinton.  So, expect China to do something with a stimulative economic effect.  Well, and expect the Chinese military and police apparatus to be playing a larger role in domestic politics as well.  Back in 2008 China announced what was equivalently about $5 trillion had the U.S. announced a similar program.  Another program could most certainly be announced.  There is no reason they can’t continue to build more empty shopping malls, more empty cities, more bridges to no where, more empty apartment complexes, more empty skyscrapers and on and on. Maybe that will keep the global system wound up for some period of time.

Now with the world afire, there is no one else for capitalism to loot. The investor class of looters has brought there money home. (Think Mitt Romney, hedge funds, Wall Street, Jamie Dimon, private equity, etc) This is clearly confirmed via capital flows.  Corporations aren’t spending new money globally because the global economy is now so unstable.  That means their stash of cash from looting the world is showing up as a money bubble in the hands of corporations and the financial looters.  This shows up in our money supply data.   Does that mean rising money supply implies a healthy economy?  Hahaha.  To the contrary.  Unless we see a recovery somewhere in the world that has sustainable demand, that money will eventually be drawn down to pay fix costs, operating expenses and payrolls.  We already see signs of this in the most recent unemployment numbers which was one of the highest (worst) in the last three years.  

With all of this said, who is going to take advantage of the loan and money growth that QE3 is banking on? Well, unless it is corporations using their credit lines to maintain cash flow (using their credit cards to stay alive).   ie, I believe macro factors are aligning to ensure QE3 is a failure.  In other words, the correlation/causation dynamics that ensured QE1 and QE2 were successful have now changed. 

The global economic crisis is worse than four years ago.  And, that is exactly what I said would happen countless times over the last seven years.  The ultimate crises are massively larger thanks to people like Paul Ryan, Barack Obama, Mitt Romney, Eric Cantor, Nancy Pelosi, Joe Biden, Ben Bernanke, Jamie Dimon and Lloyd Blankfein.   Well, and their counterparts around the globe.  These people have no idea what they have done.  But their megalomania, narcissism and ego drive them forward to do even more.

By the way, for those who read to the bottom of this post, the only U.S. equity market index that matters right now issued a sell signal yesterday and is weak again today.  And, we are the most overbought in U.S. equities since June of 2007.   In June of 2007 we were just weeks and a few percentage points away from putting in the all-time high on the S&P.  Market internals deteriorated continuously after that until we eventually saw the 2008 collapse.  Not exactly a great time to be buying stocks even though the looters rammed markets yesterday and told us, as always, that now is a great time to buy.   If you believe at some point the stock market is going to reconnect to the reality of the economy, and I believe that time is near due to uncontrollable macro factors, well……..

Update:  Today Marc Faber commented on this week’s Fed announcement.  Marc is always an excellent read and his sentiments align with much of what I wrote yesterday and today.

posted by TimingLogic at 10:37 AM