We are discreet sheep; we wait to see how the drove is going, and then go with the drove. We have two opinions: one private, which we are afraid to express; and another one – the one we use – which we force ourselves to wear to please Mrs. Grundy, until habit makes us comfortable in it, and the custom of defending it presently makes us love it, adore it, and forget how pitifully we came by it. Look at it in politics.
– Mark Twain
Humanity’s most valuable assets have been the non-conformists. Were it not for the non-conformists, he who refuses to be satisfied to go along with the continuance of things as they are, and insists upon attempting to find new ways of bettering things, the world would have known little progress, indeed.
– Josiah William Gitt
The media I’ve had a lot to do with is lazy. We fed them and they ate it every day.
- Michael Deaver (Former top aide to President Reagan)
Has The Fed Waited Too Long?
Those that know me understand clear as crystal that I don’t approve of massive money printing. I think it is theft, plain and simple, and represents an egregiously deceptive manner of transferring wealth from the poor to the wealthy and from the productive to parasitic financial oligarchs. That being said, the world we live in is being led by a bunch of crooked banksters and the Central Planners that do their bidding. At the top of the Central Planning global ponzi pyramid, is our very own Federal Reserve, headed by master Keynesian magician, the Wizard of Eccles, Ben Bernanke. For the vast majority of 2012, the Federal Reserve has been playing a very, very dangerous game. This game has been to pretend that they will not be printing any more money in an attempt to get commodity prices down as low as possible before they proceed with the inevitable. While they have done this on a smaller scale many times in the past, this particular game of chicken has in my opinion gone dangerously wrong. You see, ever since the 2008 debacle the Fed has been quite aggressive and more or less “ahead of the curve” when it has come to feeding new liquidity into the system…until now.
All of the prior programs were ready to go at the first hint of economic weakness. Even if they weren’t launched right away, the intention to print was made clear and this stabilized the system in the short-term. Not this time. This time the Fed realized that their models weren’t working. Employment continued to be weak as inflation picked up. Everyone was starting to complain about gasoline and the public was increasingly making the connection between Central Banking/fiat money and the rise in their cost of living. Occupy Wall Street emerged on the scene. All of these things put Bernanke and all his other vampire brethren on the defensive, and indeed in a box. They increasingly had to rely on less effective, more opaque means of providing liquidity. The Fed swaps to Europe was one example. The European LTRO was another. All of this has been done and all of it has now proven to be a failure. The periphery of Europe is in mired in an all out Depression and many of the BRIC countries are much closer to being in a collapse than many want to admit. That said, there is still this consensus that the U.S. is experiencing decent growth that will continue and perhaps accelerate into 2H12. Not only do I not agree with this, I think there is a good chance the U.S. is now experiencing negative growth. I think May represents the first month of real domestic weakness.
Stocks are Collapsing on Bad News
What I have noticed this quarter more than in any other in recent memory is that names are vaporizing on even the hint of bad news. Let me show you some frightening examples.
If the market was confident that this was just a blip I do not think these stocks would have responded this way and then barely rebounded. Similarly, there are many names that have put up strong results, only to have sold off on the news. HD, COH and RL come to mind. To me this is evidence of the market sniffing out economic weakness ahead, and more importantly a Fed that is behind the curve for the first time since 2008.
The BIG Print is Coming
Momentum is a strange thing in general, and social experiments as large and complex as massive economic systems are not immune to its mysterious ways. Once momentum gets going it is extremely difficult if not impossible to reverse in the near-term. This is why I have been pounding the table on China not doing anything as things unravel over there. In waiting so long to try to respond to their major slowdown, they have now seriously risked a hard landing, unless they have a plan (this is not clear as of yet) as I outlined in last week’s piece China Better Have a Plan.
Here in the U.S., I think that The Bernank’s plan was to pretend they didn’t need to print more money, get commodity prices down and then hope that the economy would respond favorably to that development. This wouldn’t have negated the need for more printing; however, it would have bought time and allowed for a potentially lesser degree of action. Instead, what has happened is that the global ponzi is completely and totally incapable of holding itself together without consistent and increasingly large infusions of Central Bank money. The debt burden is too large, the mal-investments too pervasive, the corruption too systemic. The whole house of cards that is the global economy will vanish into dust rather quickly without more and more printing. So what do you think they are going to do?
If I am correct, and the U.S. economy itself is now in the early stages of what will probably turn into a serious economic slowdown, then it will not be easily stopped with incremental Central Bank policies. The fact that they have waited this long and the fact that the global economy is in the midst of a serious slowdown tells me one thing. They are way behind the curve and by the time they realize this it will be too late to stem the momentum. That said, I do expect them to respond and the fact that things will have gotten much worse than they expected will mean a major response. I’m not talking operation twist part deux. I mean a serious print. Potentially the BIG ONE.
In this sort of scenario, the inflation hedges will sniff it out first. So I would expect the precious metals to bottom well before everything else does. In fact, we could be looking at a situation where the metals and their shares rebound sharply while the U.S. equity markets continue to decline. This could last many months. I want to point out that the GDX bottomed in October 2008 and was up 100% before the S&P 500 bottomed in March 2009. So over a five month period the GDX doubled while the SPX declined 25%. Don’t think that can happen again?
Peace and wisdom,