Federal Reserve

People, Get Ready

By David Stockman  |  January 2, 2020

Editor’s Note: Happy New Year! It’s the first trading day of 2020, and all the major equity indices are in the green… of course, the Federal Reserve’s “not QE” liquidity injections have more than a little to do with what continues to be a simple exercise in multiple expansion.

The Fed’s pivot from “normalization” to “all easy money, all the time” is why we invited Michael Coolbaugh to join our team last summer. This being Thursday, we’d normally hear from Michael about what’s going on in the market.

Instead, we’re going to continue with our “Welcome to the Turbulent Twenties” series. And we’ll conclude it tomorrow.

But I wanted to be sure you understand how Michael fits into all this. When Jerome Powell capitulated to Bubblevision and the Tweeter-in-Chief, the game changed completely.

Now, with Michael aboard to navigate what remains treacherous terrain, we’re going to identify opportunities for upside while we continue to prepare for the inevitable prodigious downside that comes with these sordid bubbles.

Michael is also ready to roll with his new service, Delta Profit Trader, which will afford you the opportunity to engage more frequently with the market. Stay tuned for more information on Delta Profit Trader. And Michael will be back here next Thursday…

Donald Trump’s conclusions about the Federal Reserve are absolutely correct, even if his hackneyed “easy money” reasoning comes from the deep bleachers in left field.

His call for even lower interest rates and a resumption of “quantitative easing” is, of course, totally wrong.

But the Donald will bag his institutional prey nonetheless. His predecessors were choreographed and scripted by their advisors on matters of monetary policy. Unlike every other recent president – save Ronald Reagan most of the time – the Tweeter-in-Chief is his very own man.

And the one thing he’s going to accomplish in his misbegotten tenure is to tear away the veil protecting our monetary central planners.

“The Eccles Building and its 12 regional annexes are populated by high-minded technocrats whose essential work safeguards the lifeblood of American prosperity.”

That’s the story they – Wall Street, the 1%, Imperial Washington, the Duopoly – want told.

But the Donald’s escalating war on the Fed – which is going to soon get far more vicious and heavy-handed – will shred the arrogant pretensions of this politburo that’s usurped control of financial and economic life in America, and, for that matter, on the fairest part of the planet.

Before the dust settles on the 2020 election, he’ll have totally besmirched and destroyed the credibility of the Fed, at least in the eyes of his base. At long last, there will be a popular national debate about central banking and what it actually accomplishes for Main Street.

And we should relish the prospect.

There’s no way to get back to free market prosperity until our self-perpetuating cabal of monetary central planners are politically lacerated and virtually pulverized. We’ll sort the fragments later.

But you must take down this institution first. The Federal Reserve is the No. 1, the No. 2, and the No. 3 enemy of free markets, prosperity, and the people in America and in the world today.

The crucial starting point is to debunk the Humphrey-Hawkins Act and the Fed’s inflation and full employment mandates.

First off, folks, the Fed doesn’t have a prayer of creating inflation, let alone hitting with precision its specious 2.00% inflation target.

In an integrated global economy driven by central banks engaged in a race to the interest-rate bottom, the bias of the financial system is toward over-investment, malinvestment, and deflationary overproduction.

Here’s the smoking gun…

The purple line represents a popular commodity index heavily influenced by global price cycles for raw materials. As it evident from the right-hand scale, the year-over-year global commodity index swung from negative 30% during the near global recession of 2015-16 to positive 30% during the 2017-18 Chinese-credit-fueled mini-boom, and then back to 0% or less in recent months.

During that same seven-year period, the Fed’s preferred measure of inflation swung from 2.5% (overshooting the target) to just 0.5% during the 2015-16 slowdown. It then sprang back to 2.3% during the mid-2018 sugar high. It’s now back to 1.5%, generating calls for more Fed easing owing to an alleged inflation shortfall…

This is risible nonsense.

What the Fed is accommodating is the insatiable appetite for easy money on Wall Street.

And the global regime of monetary central planning inheres toward massive and cumulating indebtedness. That’s because, at bottom, there is no economic magic at all in its tired brand of borrow and spend “stimulus” enabled by cheap, falsified interest rates.

But that’s all coming to an end, thanks to the Great Disruptor.

This Crisis Is Your Opportunity

This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

You’ve got to be nimble to win in this market…

To common sense.

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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