Finance

Bernanke’s “Banzai!” Moment

By David Stockman  |  February 28, 2019

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated…

– Milton Friedman, “The Optimum Quantity of Money” (1969)

It’s two weeks now since the S&P 500 Index broke above its 200-day moving average.

Through Tuesday, it’s 29 positive days out of 41 trading sessions so far in 2019. It’s the best start to a year since 1987.

It’s remarkable – especially when you consider the collapse of the earnings outlook for the first quarter.

In September, the forecast for earnings growth was 6.7%. By the end of 2018, that consensus estimate was down to 3.3%. Today, it’s 1.7%. And it could be negative before we’re done.

And, as David Rosenberg pointed out yesterday, the “nominal” Institute for Supply Management survey reading, which takes account of both manufacturing and nonmanufacturing, has fallen for three months in a row.

It’s now 13% lower than it was when the Great Recession started. And it’s 19% lower than it was the month before the dot-com downturn started in March 2000.

Say what you will about the impact of the longest government shutdown in history. That, too, is just a harbinger. Wait until the coming debt ceiling debacle.

These aren’t the only “crosscurrents and conflicting signals” – to borrow the words Federal Reserve Chair Jerome Powell used this morning to describe the current situation to the Senate Banking Committee – we’re dealing with.

There’s also the fact that what we have here is a wheezing, debt-ridden, speculation-saturated 116-month-old “recovery” that has “knock me over” written all over its forehead.

And, despite Powell’s pitiful rhetorical pirouette, the Fed is still liquidating its balance sheet at a $600 billion annual rate.

The federal debt continues to soar, crossing the $22 trillion mark in mid-February.

Europe is on the cusp of recession, with both Germany and Italy heading toward negative GDP prints. And France is in the throes of dire political breakdown.

Meanwhile, the Red Ponzi teeters and totters ever more precariously, as signaled by abrupt slowdowns among its principal suppliers Japan and South Korea.

Oh, but there’s always a fresh rumor of a Trade War breakthrough – the Tweeter-in-Chief won’t be raising tariffs from 10% to 25% on March 1…

We’re asked to believe this and much other bullshit from Imperial Washington…

Surreal as it is, this is where monetary central planning has brought us.

Fitting, too, that this month marks the 20th anniversary of Japan’s adoption of ZIRP, or “zero interest rate policy.”

Of course, it wasn’t Japan’s brilliant financial leadership that made ZIRP happen. The Land of the Rising Sun – already buried in public and private debt by the end of the 1990s – followed the lead of our very own Helicopter Ben Bernanke.

Bernanke was overseas doing a warm-up consulting gig with the Bank of Japan, apparently preparing for his appointment to the Federal Reserve in 2002 by the George W. Bush White House.

And print the Japanese did…

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During the 20 years of ZIRP, Japan’s nominal gross domestic product (GDP) has risen by 5%. That’s against a 602% increase in the balance sheet of the BoJ.

Did you know the third-largest economy on the planet has crept along for two decades at an average annual growth rate of just 0.25%? Did you know that the footings of its central bank have soared 125 times faster?

You can’t make this stuff up.

Here’s the thing: Japan’s central bank policy is only a slightly advanced case of what the Fed, the European Central Bank, and most of its global peers have been doing.

And what have their massive purchases of real claims on labor, capital, and material embodied in government debt by means of an unrelenting, monumental emission of printing-press credit gained the Main Street economy?

Monetary central planning has devolved into an absurd, gargantuan financial fraud.

Let’s see how long it withstands those headwinds.

Get Yourself a Windbreak

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