The editors of Forbes have asked me to give them my economic forecast for the next year (cough, cough, guffaw). Don’t be impressed. They sent the same email to the whole financial wackosphere. I assume that their purpose, as with the entire financial infomercial media, is to poke fun at us wackos so as to minimize their own horrendous shortcomings as financial journalists.
OK, so I’ll give them an answer since they were nice enough to ask. But let me preface this for those of you who don’t know me by saying that I’m not an economist, thank goodness. What an embarrassment that would be. My educational background is in accounting (undergrad) and psychology (grad ). My professional career over the past 22 years has been spent mostly in real estate and financial market analytics. So I’ve had some exposure to the real economy and the financial economy.
I’ve had a particular interest throughout my life in manias and their aftermath. I’m a self taught technical analyst (aren’t we all), having first become interested in the art of TA at the ripe old age of 13 when I was introduced to point and figure charting. What I have learned about liquidity analysis, an area in which I specialize, has been through independent research, observation and study. My ideas are not polluted by the shibboleths of formal education. My interest in manias brought me back to my current job as an independent self-employed professional analyst and web publisher in 2000 when I founded Capitalstool.com. I founded The Wall Street Examiner in 2004.
In my late 20s I worked for several years as a sell side technical analyst for a couple of institutional boutique firms on Wall Street. Let’s just say that the Street and I did not mix.
I had morals.
While working on the Street in the early 1980s, thanks to reading people like Joe Granville, Richard Ney (The Wall Street Jungle), and Charles Mackay (Extraordinary Popular Delusions, etc.) I realized that the financial media was nothing more than the marketing arm of the Wall Street retail distribution network. Wall Street’s job is to distribute paper and transfer wealth from the many to the few, including, most importantly, itself. The media’s job is to transmit the sales pitch.
The financial infomercial media plays a crucial and integral role in that system, providing a platform for Wall Street’s professional shills to reach the masses. It is the greatest manipulative system in the world since Goebbels, mastering the art of repeating the Big Lie to perfection. When a shill comes on CNBC and says buy XYZ, his in house traders are the ones doing the selling.
One of the Big Lies is that the stock market discounts the future. We’ve had a big rally, so the economy must be about to get a lot better, so the story goes. But the truth is that the stock market is nothing more than a liquidity meter. It measures a very particular type of liquidity. It mostly measures how much cash is burning a hole in the pockets of the dealer community.
Right now, thanks to the Fed, the dealer community, particularly the Fed’s Primary Dealers who dominate not only the Treasury market but the stock market as well, are rolling in oceans of cash, pumped directly to them by the Fed. They are using most of it to pay down debt by selling much of their questionable assets to the Fed, particularly mortgage debt and corporate debt, but they are using some of it to manipulate stocks higher. They do that because, one, it’s easy for them to do it, and two, because it’s much easier to get the suckers, oops, I mean the buy side institutions, to take the other side of the trade when prices are rising.
So as long as the Fed pumps this cash to them, stock prices will go up. It has nothing to do with the economy. It has nothing to do with discounting the future. The idea that stock prices discount the future is ridiculous. Stock markets are comprised of people, or at least the people who wrote the computer programs that do most of the millisecond trading that dominates price action. People, by and large, are not very good at predicting the future. That’s especially true of economists, pundits, and most of all, portfolio managers, whose only real interest is in not doing anything different than what the majority of portfolio managers are doing. How in the world can a portfolio manager properly manage money when one of the mandates of the industry is to stay fully invested. The best they can hope for is to do better than their peers. They can do nothing to protect your assets in the event of systemic collapse, such as we are now facing.
In continuing to spread the lies this time around, the media helps to insure that for the foreseeable future there will be no recovery from this economic and financial mess. The media continues to feature the same people telling the same idiotic stories, pursuing the same tried and true practices of distributing insider stock, especially their own, at high prices to the masses. The cash goes right from our pockets to the pockets of the financiers, with the media getting a huge cut in the process. They are co conspirators in a massive criminal scheme, some of it legal, some of it not, to separate people from their money.
This time they did it a little too well, and therein lies a problem for the economy. Few have any money left to transfer. The Fed and Treasury have set up a scam over the past year to make it look as if there’s still money, but what they have actually done is to transfer risk from the private sector to the public sector, in other words us, current and future generations of US taxpayers. In the process they’ve pumped a couple of trillion of new government debt into the economy and the markets over the past couple of months making it look as though everything is gonna be all right.
But it’s not gonna be all right. In fact, things are getting worse as we speak, and they will continue to get worse for the short term, the intermediate term, and the long term– for as long as the same people are in charge who caused this mess in the first place; for as long as the media continues to give a platform to those same people who were responsible for all the–let’s call them what the are–crimes– that put us where we are. For as long as those in power in Washington give those same people the same power they have always had, rather than punishing them for their “mistakes”, we are going to be in this mess.
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So now we have transferred trillions of bad debt, some of it completely worthless paper, on to the books of the Fed and the Federal Government. What can the outcome possibly be? Ultimately default? Devaluation? Hyperinflation? Slow motion economic collapse such as that which is currently under way? Even finally the collapse of government and society? Anything is possible, given how insane these policies are and how clueless our policy makers have been and continue to be.
For example, the government has committed to take on $1.45 trillion of mortgage debt in various forms. In most cases the equity has been wiped out. There’s no margin of safety in those mortgages. The government will lose countless billions on its investments. We, the people, will somehow have to pay for that. Meanwhile, the financiers in the middle of the mess in the first place are still there. If they’re not still running the show, they’ve run off somewhere with the billions that they have skimmed and scammed off the top.
Now the media reports that, gee! the government is actually making money from the investments it has made in bailing out the banks. But the Fed and the Government are just playing the same game the banks played, reporting the “operating profit” while not reporting the mushrooming mountain of bad debt on their books. This is the very same garbage that got us here in the first place, except now the government is taking a page from the banks and financial institutions that mastered the art of hiding bad debt. It’s sickening, but no one in the mainstream media questions it.
Where are the real journalists? Not working for the mainstream media, that’s for sure. They’re still giving a free pass to the power brokers.
Forbes has asked me what data I like to look at. One of the things I featured just today in one of my reports to subscribers is Federal tax collections so far in August. They were down 13% versus last August to date. July was down less than 6% year to year. Where are the green shoots? The government has disbursed $227 billion more into the economy this month than it did at the same point last August. And yet tax collections continue to collapse, indicating that economic activity is doing likewise.
Source: US Treasury
One of the problems is that zero interest rates forces both people and businesses to liquidate principle in order to pay the bills. So the capital pie shrinks. A shrinking capital base means shrinking income. Shrinking income means that people will need to liquidate even more capital. The system collapses in a chain reaction.
Government programs have done nothing to change that. They’ve masked the degenerative process for a time with all that spending, but they’ve done it only by adding more debt to the government’s balance sheet. At the same time, debt in the private sector, and hence money, is being destroyed. We see it in all manner of lending statistics, from bank loans, to mortgage credit, to commercial paper. And we see it in the rising tide of mortgage defaults. People can’t pay or won’t pay. So they don’t. This is what’s backing our “money”.
Source: Federal Reserve
Meanwhile lending institutions and now the government pretend that the losses don’t exist, reporting unbelievably, that the money supply hasn’t collapsed along with everything else. They have no choice. They have to keep the con going, lest there be one final, fatal run on the banks and/or the money market funds.
The Fed’s zero interest rate policy is causing the very contraction it is seeking to avoid because it does not allow anyone to earn a fair and reasonable return on their investments. In order to pay the bills people and business must liquidate assets. At the same time, they are desperately trying to pay off debt. So the pie shrinks and money disappears.
The media is fond of saying that no one in the mainstream saw this coming except Roubini. How stupid is this? The media is the sole decision maker about who we get to pay attention to. If they feature only liars and fools, then of course it will seem that no one saw this coming. And they feature almost entirely liars, fools, and criminal manipulators.
Let’s consider who got this right in addition to Roubini. How about Professors Case and Shiller, and Niall Ferguson. How about Nassim Taleb. What about Warren Buffet’s warnings about derivatives? How about George Soros? Jimmy Rodgers?
What about Ron Paul, whose warnings fell on deaf ears for years. Congressional hearings? Ron Paul? Oops, time to cut to a commercial!
What about Doug Noland of the Prudent Bear Funds’ Credit Bubble Bulletin who has correctly been chronicling and forecasting this mess for a decade. What about Bill Fleckenstein and David Tice, and Peter Shiff? What about John Hussman? What about Robert Prechter? Bill Bonner of the Daily Reckoning? Mark Faber? What about Martin Weiss? There were many more like them. Why did we almost never see these guys on the tube or in print. And why, when we did see them, was the usual purpose to ridicule and harass them?
Because the media was and is a co-conspirator, witting or unwitting, with the Wall Street criminal distribution machine. The media is populated by conformist morons, too fat and lazy, too coddled by their Wall Street sponsors to be bothered by anything so mundane as to search for the truth. I mean, it’s not like it was hard to find.
What about all those guys in the wackosphere like my colleague Russ Winter, or Mike Shedlock, or even me for goodness sakes? I know I don’t count because only a few thousand people have ever heard of me, and half of them only know me as Dr. Stepan N. Stool. But there were dozens, if not hundreds, of bloggers who saw this coming for years. I was far from alone.
What about all the thousands of ordinary people who have participated on our message boards down through the years? They knew. But again, the media decides what the public gets to see and hear. The media decided that the “Cassandras” were only to be featured on occasion as objects of ridicule. And now that the economic data has stopped going down for a couple of months and the stock market has been going up, they are once again the subject of scorn.
Then there’s the 5,000 people surveyed by the Conference Board every month. Look at how many of them had soured on things in 2006 and 2007, versus their level of optimism in 1999 and 2000.
A whole lot of ordinary people “got it.” Only the mainstream infomercial media didn’t get it, because they are, after all, on the payroll of the Wall Street Mob.
The fact is that the economy is not getting better. It is not healing. Nothing goes down in a straight line, especially when a government throws a couple trillion in debt at it. But those trillions are not endless. The kindness of strangers, namely foreign central banks who buy that debt, is not without limit. The time will come when the government will not be able to float more debt to pay off the existing debt, when the burden of paying back these wildly reckless bets will fall directly on the back of the US taxpayer.
We are facing a crisis much greater than any we have faced so far. The Fed will not continue to pump cash into the pockets of the Primary Dealers indefinitely as they have been doing since March. When that cash gusher stops, or even slows, the stock market will again collapse. It simply cannot be sustained at these levels without that subsidy.
As for the economy, over the next year, it will get worse, for all the reasons enumerated above. How much worse, I have no clue. I’m not an economist, thank goodness. What an embarrassment that would be. Obviously they have no clue either. They pretend. That’s all. They missed the biggest collapse in the last 75 years. Knowing what’s likely to happen is not their job. Their job is to talk a good game so that Wall Street can continue its game.
Ripping off the rest of us.
So Good Night, and Good Luck.
You’re going to need it.
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Rant on, brother!
Sidebar: You felt compromised/pressured doing TA @ sell side? They tried to get you to flip the charts over? Or ignore gold(I assume it was the 70’s)? Not that I doubt you, it just seems like TA ‘is what it is’, so the pressures must have been egregious and baffling.
Nice job ass-kissing the Forbes combine! They will be having you back all the time now. fotflmao. I love you man. Your gall is my gall. 🙂
Nope. No pressure. Just the general stench. It was 1979-83.
Thanks, Speak. Good thing they didn’t ask me about health care and the 70% penalty we pay for livin’ in the USA.
Excellent article for the screed alone, but the content is also surprisingly rich, for a piece so calorie-packed with sugar too. ;D
The CP data slid off my map after the Fed launched credit facilities to intervene in the market. I had assumed it had recovered in lockstep with the credit derivative and equity markets, but it quite clearly hasn’t.
In retrospect, I shouldn’t have been so shocked. If you follow the Z.1 — and who doesn’t — it’s very clear that the only source of money creation right now is indeed state, local, & federal government, as borrowing contracts in all other sectors.
There is a very consistent picture here of increasing debt load on the government, with these Treasuries and Munis disproportionately owned by the top 1% and foreign central banks, even as debt load on consumers and corporations shrinks nominally.
In a world full of offshore tax havens, where many of the underlying levers involved in seigniorage have been snapped off, how exactly is a greater debt owed by government different from a greater debt owed by American corporations and citizens?
In a very real sense, not much has changed at all: we have just continued to lever up, and continued to increase the debt load on the citizenry, but we’re just doing so in a marginally more egalitarian(e.g. everyone without tax advisors) way. In the process, we continue to indenture ourselves to the top 1%.
I really think that, given their aims, Wall Street has actually managed this entire crisis with spectacular panache and faculty, and they should be quite pleased with the outcome. As a freebie, they are now even more in control of the Government. Bravo.
I’m sitting entirely in nominal Treasuries. If you can’t beat ’em…
p.s. That stench of corruption in Wall Street is getting pretty pervasive in the field I work in too. I think the world is running out of places to hide from it. It’s an effective strategy, and it will win over time.
ROFL!!! Would love to see them reading this: “WTF? Who the heck IS this guy?”
The bear market in main stream media is pretty well earned, but it’s no conspiracy: the rubes aren’t doing themselves in on purpose, it’s just what Menkin said about the difficulty of convincing someone who’s salary depends on their not believing.
Your traffic is going up, theirs down! Keep talking!
It’s ironic that the apotheosis of Civil Rights legislation, wherein one person finally got one vote virtually coincided with Buckley v Valeo in 1976 whereby the Supreme Court determined that money was speech making moot 200 years of the extending franchise.
Now barely thirty years left our vote means about as much as Iran’s and we are left with the Republic of Cash. What is encouraging is the declining value of that cash.
Very interesting read. Thank you very much!
So refreshing to hear the truth spoken.
Lee, if you haven’t seen it you’ll be thrilled () at this Daniel Gross piece over at Slate.com today:
On 1 September I listened to the CEO of VISA on CNN Europe say that consumer spending is the lowest he has ever seen. Consumers have shifted spending from credit cards to debit cards and consumer spending is NOT rising. And he has no idea when it will rise. Is that the basis for a European market at 45 times earnings? The US consumer is 25% of global consumer spending. The US consumer spends 4 times the amount that China and India put together are spending. Therefore the “decoupling” theory is a farce. Global markets will drop sharply by the end of Q3 earnings season when it is apparent to all there is no revenue growth. Anywhere.
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