Budget

The Truth Is In Here…

By David Stockman  |  February 14, 2019

Roses are red
Violets are blue
Retail sales sucked
BTFD

– “Ramp Capital,” a Twitter parody account, on Valentine’s Day 2019

When he was appointed, I referred to Federal Reserve Chair Jerome Powell as “Janet Yellen in trousers and tie.”

And he’s made good on the sobriquet.

In its most recent statement, the Federal Open Market Committee (FOMC) points to the lowest unemployment rate in 40 years and recent GDP growth and says the U.S. economy is “solid.”

So, why – with the inflation-adjusted fed funds rate at just 0.1% and its balance sheet still hideously bloated – must the Fed pause its “normalization” campaign?

That’s what these cowardly geniuses have done…

They cut any reference to future rate hikes from the statement. And a new note – they call it “additional information” – suggests their balance-sheet-shrinkage program is not on “autopilot” after all.

They’ve also demonstrated – once again – that they’re clueless about the real-world impact of their policies.

They’re radical interest rate and balance sheet policies haven’t stimulated the Main Street economy. Households are at Peak Debt.

And Corporate America is made up of nothing more than stock-trading boiler rooms and financial engineering joints.

Even this site called “Jalopnik” gets it:

More Americans Are at Least Three Months Behind on Their Car Payment Than Ever Before.

Data like these are starting to pile up…

Indeed, equity futures took a dive this morning after the Commerce Department reported that U.S. retail sales fell in December – “unexpectedly,” according to Bloomberg. It was the biggest month-over-month decline in nine years.

After decades of money-pumping, the Fed itself has destroyed all remaining links between central banking and the Main Street economy. Accordingly, its traditional playbook is non-operative.

Low interest rates do not cause households to borrow their way to wealth and happiness. And they induce CEOs and CFOs to strip-mine their own balance sheets and cash flows rather than invest in actual production and real people.

The Fed’s credibility is 90% shot. And the balance will be obliterated by unfolding events in short order.

The signs of recovery we do see materialized despite Imperial Washington.

Durable recoveries grow on the natural resilience of American capitalism. “Creative destruction” is all about businesses, entrepreneurs, workers, investors, and speculators striving to better their lot.

The current recovery is so anemic because we face headwinds – like massive public and private debt burdens – that have been building for five decades.

U.S. Economic Contractions + Expansions Cumulative Real GDP Growth Sicne Prior Peak %

The impact of the Fed’s post-Global Financial Crisis interventions was best enjoyed on Wall Street. “ZIRP,” “QE,” and other exotic policies merely reflated financial asset prices.

Now, we have the Everything Bubble – and another round of blind speculation in the casino that will only make the eventual reckoning that much more traumatic.

Our monetary central planners claim their recent capitulation to Wall Street was all about the “incoming data.” That’s a bunch of bullshit.

The only thing different about the Main Street economy between December 19, 2018, when Powell was chirping a hawkish tune, and the January 30, 2019, FOMC statement is that the Dow Jones Industrial Average plunged by 1,800 points in four sessions.

So, Bubblevision – with a bully assist from the Tweeter-in-Chief – came down on the Eccles Building. That means more than all the incoming data in the world.

Here’s the truth: The Federal Reserve is Wall Street’s bitch.

And that’s the end game of Keynesian-style monetary central planning.

When You’re Ready for a Fresh Start…

Desperate times call for… “common sense” measures.

And these are desperate times… 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…

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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. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR