Why Aren't We Saved?
As any of you who might have read us over the many years know, I'm no fan of the Federal Reserve. I'm not going to use up digital space here complaining about how criminal it is, or why it's unconstitutional, or what have you. Just know that we'd be much much better off without them. I'll go ahead and tear them up again in another article in the future. But for today, we want to answer the question... why isn't this recession over and growth at normal levels??
We just got past two days of Bernanke lying to us about the economy, and just about everything else. But there was one item of truth that came out of the hearings. The Government isn't helping the situation. One of the frustrations that just about everyone has is "why aren't we growing like we should be after all this Fed stimulus?" Good question.
In years past, the Fed appeared to be the savior to our economy. If things were too slow, they'd change the interest rate picture, inject some "liquidity" and in due time the economy would perk up and we'd begin to grow well again. If things then got too hot to handle, they'd pull back the reigns, tighten rates and slow down the train. Many thought they had it all figured out and nothing bad could ever happen again. Oh how wrong that is.
The Fed didn't save us from recessions in the past, but by making big monetary policy changes, they could "push us" up enough until the economy got its footing and then it would take off again. So why can't we seem to gain any traction this time?? Why are we going on 5 full years of incredible stimulus, trillions printed and the economy just barely alive, like it's on life support?? Because in the past, we HAD an economy. Today we have the façade of one.
Just think for a moment about all the regulations that have been passed in just the last 25 years that is not "business friendly". The layers of red tape. The ever tightening grip of the EPA and DEP. Consider the fact that just to open a new Walmart, they generally have to wait 6 years to get the okay to do it. They have to do this study and that study. They have to check and make sure no wooly moths live there, or endangered toads. Then there's the impact study, the water run off study. Then of course the public hearings, and on and on and on. That's all just to open a stupid retail outlet.
Try opening something to do with industry. I have dear friends that spent tens of thousands of dollars on permits just to get a small manufacturing business created in NJ. And before the first shovel of dirt was turned, the EPA changed the rules about their chemical storage and delayed it another 18 months. They abandoned the project.
OSHA must be foreign initials for Nazi. These guys come into every work area and make some of the most outlandish rules one can imagine. Common sense need not apply. For instance a well known roofing company that does major buildings and school roofs is constantly harassed by these guys. OSHA says that they have to put up "barricades" around the rooftops so no one inadvertently falls off the roof. Okay fine. The barricades go up. But when it is time to load the roof with materials, they take down that one section, so the crane boom can clear. The minute they take it down to load the material, they are fined. It doesn't matter that everyone is off the roof where the material is loaded. It doesn't matter that it's ONLY for the period of the moving crane. Sorry, here's your 30 Grand fine.
Between taxes, health care, EPA regulations, OSHA regulations, Insurance, disability insurance, Lawyers, etc etc... it is almost impossible for the small man to build anything today. Is it any wonder why owner operated small business is at the lowest level since records began?? Nope. No wonder to me. And without those start ups, and some of which would grow and prosper, there's no entry level jobs. No upward mobility. Nothing.
So one of the biggest reasons we aren't seeing a booming economy is because the Government has killed the engine of all growth. Hell they even kill the basic desire of striking out on your own. Years and years ago, you could bake cookies in your kitchen and sell them door to door. If they were really good you could then open your first bakery and then eventually become the next Entenmans's or Hostess. But today? Ha. You'll go to jail. You have to install commercial appliances, and get all manner of inspection. Then there's the issue of door to door which is illegal now. They arrest kids for lemonade stands in America now. A lady was arrested for cooking dinners for homeless folks in the Philly park. Sorry, can't do that you're not permitted, inspected. Couple all that crap with offshoring and outsourcing to foreign countries and you have no incentive for someone to even "try" and open a business.
Next up we have demographics, and they aren't pretty. If you go back to the 60's and 70's when America was the creditor to the whole world and anyone that wanted a job could find one in a matter of 5 days, a lot of the demographics were much different than today. After the WWII all those GI's came home, bought houses, and opened all manner of business. Many grew rich, and then they had kids. They wanted their kids to have it all too and bought cars and educations. Money was plentiful. But Americans often go a bit overboard. Many spent too much. Many took on too much debt.
Today thousands of baby boomers are trying to retire and can't. Each day almost 4K boomers reach 65 and that number will grow for the next 8 years. But there's a problem. Because of the Fed's "2%" inflation rate ( which is really around 8%) everything costs too much. They didn't save enough. It is incredible but true that 45% of all working households have NO retirement assets. None. Another 20% don't have enough to last a year. Now add on the age factor and the loss of productivity that brings. The medical increases.
In the 60's, 70's, and especially through the bulk of the 80's and 90's people considered their home as their savings account. Houses had only gone up for all those years. But today we now know that housing can indeed go down. Spectacularly down. Down to the point where we still have over 7 million houses "upside down". We still have millions of foreclosures still lurking. So at just the same time that millions of baby boomers are facing old age,they have no money and their house can't save them. The biggest demographic "group" in our country is rushing headlong into a working retirement, which squeezes the already lousy job market even more. 18 year olds shouldn't have to fight with a 70 year old over a cashier job at Kmart. They do now.
So, why isn't the Fed's pulling of levers and pushing of buttons fixing this recession? Because they can't. This is not solely a monetary problem, this is a much bigger problem. No longer will printing money and cutting rates spur big jumps of economic activity. The economy has been changed at its roots and QE can't fix that. We've never had almost 50 million folks on food stamps. We've never had so many on disability. We've never been so in debt. We've never lost so much manufacturing, we've never had more regulations. We've never had an entire generation as big as the boomers all facing retirement with no means to retire. We've never had a housing market drop so far, and recover so slow. We've never had prices so high with wages so stagnant. I can go on and on.
This recession is not over. Forget the stupid stock market, that is no reflection of anything but Bernanke bucks being jammed in their tidy system so Wall Street and the bankers can get bigger bonuses. Detroit has just declared bankruptcy, the biggest city so far to do so and joins 35 other municipalities that are busted flat. Chicago's ratings have been slashed 3 notches with the outlook "negative" and announced they're laying off 1000 teachers. No matter where we look, we see something that has huge negative implications.
Bernanke can keep us alive like the respirators in a tuberculosis ward, but he can't fix the underlying disease. That makes for dangerous times. Be safe folks.
The market...
Something major is developing in the gold market and what the outcome of it is, is not quite clear. Yet. For almost two weeks now the metal has been in backwardation, which is a situation it really should never be in. But that is just one of many odd situations that we see. Look at JPM's vaults. They have one of the biggest gold warehouses on earth. Yet for months the amount of eligible gold on hand has fell and fell and fell. Late Friday night, it fell once again, leaving less than a single ton of the metal available. Think about that for a minute. Two years ago they had some 3 million ounces of metal available for call out in deliverable inventory. Today they have 46K ounces.
There is a tremendous "get what you can" grab going on by both Central banks and Sovereigns and the rigged "paper gold price" take down of the metal was clearly and simply a way to get speculators and weak hands to sell it. We are approaching some kind of critical mass, where there just will not be any metal available for delivery any longer. What happens then??
My guess is that they will not try and beat the price lower and get more people to sell. My guess is that they price starts to rise some as the folks that didn't sell, look at it as an opportunity to "make some fast dollars". We'll see. But just take note of what is happening even at the miners. Given up for dead, we told our insiders members weeks ago that the fundamentals for 5 of the mining stocks were so good that Morning Star gave them 5 star ratings. We suggested buying a basket of all 5 because even in the event that one actually went belly up, the profits of the other 4 should far exceed any one loss.
We sent that memo to our Insiders Club members on 6/27. Since then, what's happened? Well, all of them are up. Some just a couple percent and some up relatively large. AUY for instance was trading at 8.60 on 6/27. It closed Friday at 10.50. That's 23% in two weeks of trading. That's a good return for an entire year, not 17 trading days. The point being, between the strange things going on with the Bullion banks and warehouses, the miners are now being looked at as good investments. I agree.
In stocks, it is the same old story we've had for a long time. Who cares if Detroit is Bankrupt? Who cares if 36 other municipalities can't pay their debt notes? Who cares if the overall economy is in the pits? If you have a lunatic central banker willing to destroy the currency ( and we do) they can direct stocks to go up. An up is what they've done.
Now the big discussion is "will he taper or not?" Frankly it doesn't matter. WHOA, how's that? Are you telling me that stocks won't dive if he starts to taper his bond buying extravaganza? No, I'm not saying that at all. What I'm saying is that even if he does announce and then commence to taper back the dollars, say from 85 billion a month to 65 billion, the market will drop an easy 1000 points. BUT THEN HE WILL REINSTITUTE IT and possibly ( probably) INCREASE it from the current 85 billion to 100 billion.
Remember folks there is only two choices. Don't' get wrapped up in the alphabet soup of financial baloney Wall Street will sell you. They either "print for ever, and increase the size" or they pull the plug and let the global markets crash. That's it. No other choice exists. Which one will it be? Unless the elites at the very top of the food chain have all agreed that the current global system can't be saved and are willing to crash it to start over, then history says they will print and print until the weight of inflation takes us down by itself.
While I have to admit, there is some possibility of them actually crashing the economy and the markets to usher in their new idea of a reserve currency and a global "reset" , it is hard to get your arms around. The amount of evil behind a scheme like that is of a level I wish does not exist, yet I know it does. So we do have to entertain the idea that maybe there is a plan in place and that plan it to pull the plug, let the chips fall where they must, and sweep up the pieces when the dust settles.
But that isn't what I heard from Bernanke during his testimony. Twice he said that if the data supported it, they might even have to do MORE accommodation. In other words if the economy continues to worsen and employment worsens he's on record saying they might have to do MORE. They might have to INCREASE QE. If the plan was to crash out the system, I don't think they'd be on fact of record saying if things deteriorate we'll do more. They'd just continue to say they feel things are good enough to remove QE, no matter what the results.
I have to side with the idea that no matter what, the plan is to print and print and print some more, and thus the idea of a temporary "trial" tapering of the amount, shouldn't make too much overall difference. It would become a "buy the dip" opportunity.
Gold would serve as the safety item in either case. If they print for ever, the destruction of the currency will be offset by the increase in how many bogus dollars you can get for an ounce. Likewise if they are hell bent on collapsing the system, there is not much other than guns, ammo and food I want to own than gold. So it is truly a win win.
What about stocks? They're over extended as we've never seen them. Look at the 200 week moving average of the S&P. What do you see? You see today's S&P trading a full 30% above the 200 week average. Do you know how many times it has been that disconnected? Zero. That's right, we've never been 30% above it before. Secondly, take a look at the angle of ascent. It is picking up the pace big time.
From April into May the S&P put on a helluva show. We ran up 128 points in just 23 trading sessions before the market got shook up over "tapering". Then from a low of 1560 on June 24, we gained an incredible 132 points in just 17 trading days. The ascent is almost vertical. Being this far over the 200 week, and seeing a run that blistering...one can easily make the argument the market is going to need a break. A pull back, a consolidation. Even if you think this can just keep going, common sense says it can't continue at that pace.
We are cautiously long the market. If they're going to manipulate it higher, we want in. But being over exposed if they do some rug pulling will not be a happy time. Don't foget that for this entire run from all the way back in November, we have not had ONE, not one 10% corrective pull back. We are so overdue it is silly. Yet they can take the daily POMO money and jam it in stocks and push them higher still. Amazing? Yes and quite sad. This will end one day, ask Japan how things fared after they went from 10K to 40K. It isn't a fairy tale ending.
Have a great day, we'll see you all on Wednesday. PS.. If you'd like to see the exact stocks/options/metals/ETF's and 401K moves we will be looking at for this week, please consider becoming a member of the "Insiders Club" located here: Click Here
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