I’ll press your flesh, you dimwitted sumbitch! You don’t tell your pappy how to court the electorate. We ain’t one-at-a-timin’ here. We’re MASS communicating!
– Pappy O’Daniel, “O Brother, Where Art Thou?” (2000)
To kick off the final month of what’s going down as one of the best of the last 15 years of stock market history, the Tweeter-in-Chief asked our monetary central planners for more and easier money:
Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries. The Federal….
…..Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen – Fed!
Empire’s scribblers and spokesmodels say he must be getting a little nervous, holed up in the White House living quarters, fearing, apparently, to tread among the wolves inside his very own administration – indeed, inside the Oval Office, it seems…
No matter. This president has a direct line to the American people – and he’s using it to great disruptive effect.
I’ve said it before, I’ll say it again, and here it is, right now: Donald J. Trump is an economic idiot, an imbecile on trade, and a financial moron. But, in his own basic way, he’s only asking for what he saw offered to his predecessor.
And, in the end, he’s going to bring permanent discredit to the powers that be inside the Acela Corridor. That means a long-delayed purge on Wall Street and a decades-in-the-making revolution in Imperial Washington.
To that I say, “Huzzah!”
Decades of monetary central planning has blatantly falsified financial asset prices. It’s also deeply corrupted the financial narrative.
The very propositions implicit in the Donald’s tweet that we need easier money – inflation is too low, the dollar is too strong, and there are negative interest rates abroad – are ludicrous.
Yet they’re considered valid by most of Imperial Washington and much of Wall Street – and they’re considered at least debatable by even mainstream skeptics who think the Donald overstates the matter.
In truth, however, what’s relevant to the proper functioning of the mainspring of the entire market is the relationship between inflation and the money-market rate of interest.
In any rational, stable, and sustainable financial system the spread of money cost over inflation must always be positive, varying wider or narrower over time based on the supply of and demand for funds.
Now, some history…
The federal funds rate crossed under the running inflation rate way back in March 2008. It stood at 2.60% versus the 16% trimmed-mean Consumer Price Index, which posted at 2.95% on a year-over-year basis.
At that point, the real money market-rate computed to negative 35 basis points. It remained in negative territory – sometimes by 200 basis points or more – for the next 130 months running.
There’s no precedent for anything like this in all of financial history. Not even during the Great Depression did the real money-market rate run that negative for that long.
That’s because negative real interest rates on a sustained basis are completely impossible in a free market where use of money has an inherent time value. They’re only possible under conditions of extreme central bank repression of a virulence that wasn’t even imaginable before the 2008 financial crisis.
So, the last decade has been an assault on financial law itself. That’s to say nothing of the brutalized savers and fixed-income retirees whose nest eggs have been expropriated by this toxic regime.
Indeed, it wasn’t until January 2019 that a positive real money-market spread peeked out from the shadows of the Federal Reserve’s long night of repression. At that point, the benchmark federal funds rate returned to 2.40%. It reflected the grand sum of 21 basis points of positive real yield compared to the running inflation rate of 2.19%.
Under the combined onslaught of Wall Street’s entitled crybabies and their enabling sycophants grifters up and down Imperial Washington, including the ignorant bully at 1600 Pennsylvania Avenue, that interval of positive money-market spreads lasted just seven months.
The spread turned negative again by 11 basis points in August after the Fed’s capitulation at its July meeting. And it’s been off to the races ever since.
As of Friday, November 29, the federal funds rate stood at 1.56%. The October year-over-year inflation reading was 2.35%. That’s right: We’re back to negative 80 basis points on the real cost of money.
Indeed, during the last 140 months, there have been only seven in which the federal funds rate was above the broad inflation rate based on the 16% trimmed-mean CPI.
That gets us to the broader issue of the Fed’s impotence when it comes to goosing Main Street growth and jobs. And isn’t this the purpose behind the Tweeter-in-Chief’s relentless hectoring of Jay Powell and his posse of money printers?
It’s now evident that the industrial economy is sliding into recession after a record 125 months of stop-and-go expansion. Since December 2018, industrial production, real business capex, and total private construction spending have all been flatlining.
That’s notwithstanding the fact that the Fed and other central banks around the world have pivoted to “easing” mode…
We can demonstrate it six ways to Sunday. But this aberrant condition – persistent negative interest rates – has done nothing for Main Street. The problem since 2008 has been Peak Debt, not high interest rates.
To the contrary, negative real money-market rates are the mother’s milk of carry-trade speculation. They inflate financial asset prices. And the distortions and infirmities plaguing our economy flow from them.
And we have a Tweeter-in-Chief who wants our monetary central planners to drive the spread even deeper into negative territory, in defiance of every traditional canon of sound money, to say nothing of rationality itself…
The Truth Helps…
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.
Please click here to learn more about The Stockman Letter and what comes next…
To common sense.