Finance

Buzz Kill

By David Stockman  |  January 28, 2019

The great American dream that reached out to the stars has been lost to the stripes. We have forgotten where we came from, we don’t know where we are, and we fear where we may be going. Afraid, we turn from the glorious adventure of the pursuit of happiness to a pursuit of an illusionary security in an ordered, stratified, striped society. Our way of life is symbolized to the world by the stripes of military force. At home we have made a mockery of being our brother’s keeper by being his jail keeper. When Americans can no longer see the stars, the times are tragic. We must believe that it is the darkness before the dawn of a beautiful new world; we will see it when we believe it.

– Saul D. Alinsky, Rules for Radicals: A Pragmatic Primer for Realistic Radicals (1971)

Sure, “it’s only BuzzFeed,” an “online” news outlet with a dubious history, including its publication of the infamous of-Deep State-design Steele Dossier.

But they are reporting that the President of the United States may be guilty of “subornation of perjury,” meaning he allegedly told his erstwhile consigliere Michael Cohen to lie to Congress.

Meanwhile, this is day 28 of what’s now the longest “shutdown” of the federal government on record.

And the Dow Jones Industrial Average is up nearly 400 points.

In a world increasingly defined by absurdity, I take some comfort – very, very limited comfort – from the fact that animal spirits party on even as the State implodes…

And it’s further evidence that U.S. financial system is not some self-contained, insulated economic bathtub into which the Federal Reserve can pump up “aggregate demand” by pegging interest rates and asset prices.

Indeed, the last 10 years demonstrate that easy money doesn’t lead to higher spending, rising production, job creation, and income growth.

The classic Keynesian stimulus protocol does not do what we think it says it does.

In short, it’s a ruse.

If You Need Your Money in the Next 5 Years…

America is at a crossroads. The middle-class is disappearing… government spending is out of control… and the implosion of Bubble Finance will cause the greatest market crash in history. So, if you need access to your nest egg in the next 5 years and can’t afford another market crash it’s time to take matters into your own hands. Find out what to do, right here.

The U.S. is a part of an open global system of massive trade and financial flows.

In such a system, an impulse of artificial domestic demand – via, say, household credit expansion – can cause higher production in China, not Ohio.

At the same time, China’s vast credit impulses can drive global commodity prices, industrial production, and trade flows far more powerfully and immediately than do the lagged effects of pint-sized changes to interest rates in the U.S. money market.

Here’s the reality.

The Fed’s alleged keen focus on and discretionary responsiveness to the domestic situation is nothing of the kind.

In fact, our monetary central planners use weak spells in global macro trends that manifest, of course, in the U.S. economy to justify pleasuring Wall Street.

“Extraordinary” policy amounted to an implicit “put” under the price of financial assets.

Now, the Fed and its fellow travelers around the world are too far behind the curve to ever truly “normalize” monetary conditions.

All that’s left is the collapse of the third – and most unstable – of the bubbles that define this era.

Powell’s capitulation to Wall Street crybabies means the reckoning will be all the more traumatic. And he’ll go down in ignominy as the Fed Chair who blew up the world.

Financial markets are bloated with combustible tinder because the Fed held its benchmark interest rate the zero bound for seven straight years, from December 2008 to December 2015.

With only a handful of monthly exceptions, the federal funds rate has been well below the annual inflation rate for 108 months running.

In other words, real interest rates have been negative for nearly a decade. And a negative carry is mother’s milk to Wall Street.

During the whole long bottom after the Great Recession ended, the Fed was accommodating Wall Street, not helping Main Street.

After all, how in the hell does Jay or Janet or Ben and their confederates know, for example, that the fed funds rate should be 2.38%, per the December meeting target, not the 4.8% average that prevailed between 1991 and 2001?

Well, real gross domestic product (GDP) grew by 3.6% rate from 1991 through 2001, while inflation clocked in a 2.0%.

That’s a hell of a lot better than the last 10 years. With “ZIRP,” real GDP grew at just 1.8% per year, while inflation averaged only a tad lower at 1.6%.

But the stock market… oh, the stock market…

The Dow reached its Great Financial Crisis/Global Recession bottom at 6,469.95 on March 6, 2009.

Right now, it’s at 24,678.35. You do the math.

Our monetary central planners are Fake Central Bankers. They’re in the business of placating and pleasuring Wall Street. They only pretend to be about the macroeconomic good.

Maybe BuzzFeed should jump on this scandal.

“Common Sense” > “Cockamamie Scandal”

Here’s David Rosenberg of Gluskin Sheff, tweeting some common sense:

One reason to view the renewed risk-on rally as a technical bounce rather than fundamental is because we’re staring at a global recession. It’s not just me – the crew at Consensus Economics (seemingly out of consensus) sees sub-3% world GDP growth for the first time since ’09.

Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

Sincerely,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan.MORE FROM AUTHOR