The Great Recession Blog
by David Haggith
As stock markets all over the globe start the week with more cliff diving, following their worst opening week in history, I’d like to take this opportunity to jam my finger in the central bank’s eye. The Federal Reserve’s recovery plan — which I’ll call “Goliath” because of its giant monetary expansion — is now dying. Its obituaries are quickly hitting newspapers all over the world.
Even as markets struggle to catch their breath, the amount of chop is extraordinary: first a hundred points above the line, two hours later a hundred points below, and then finishing barely above. Stock markets yesterday and today look like boats bouncing across a choppy bay. Even the Fed appears to doubt how well it saw the storm that is developing out of its own plan, and a few of its rats are jumping ship.
What is by far most notable is that forecasts of more gale force winds during all this upheaval are no longer relegated to bearish blogs like mine. A whole chorus of moaning bulls has joined the growling bears in just one week’s time, including two Federal Reserve officials who helped create the recovery plan. Let me pull out a few potent examples from unlikely places to suggest whether or not the global crash is going to rage on.
Suddenly, forecasts of doom and gloom are everywhere
Market bears roared last week. What now? Chart watchers have offered up predictions on what’s next for US stocks after assessing the damage from last week. The drop ranked as the worst five-day start to a year ever for both the S&P and the Dow Jones Industrial Average. Is it time to jump back in, especially if the market rebounds this week? Don’t plan on that technical analysis suggest.
Even the normally bullish JP Morgan says,
Our view is that the risk-reward for equities has worsened materially. In contrast to the past 7 years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally…. Clearly, equities are unlikely to keep falling in a straight line, with periodic rebounds likely. However, we believe that one should be using any bounces as selling opportunities.
In other words, Get Out! Yes, JP Morgan is stating openly that it is shifting now away from its seven-year bullish position. JP isn’t the only normally bullish massive organization joining the prophets of doom and gloom by saying, Get out quick:
“Sell mostly everything, except high quality bonds.” That’s the advice of RBS’s credit team in a note sent to clients last week on the heels of the disastrous start for stocks. Those analysts went into the year with a storm-gathering view — bearish on global commodities, China, emerging markets, and pretty sour on developed equities. Andrew Roberts, the bank’s credit chief, said he had a “pretty severe downside for the world” call. (MarketWatch)
RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis…. The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008…. Andrew Roberts, the bank’s credit chief, said both global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings, and uncharted waters given that debt ratios have reached record highs…. “Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldilocks’ love-in of the last two years.” This is about return of capital, not return on capital. In a crowded hall, exit doors are small…. RBS … accuses the U.S. Federal Reserve of “playing with fire” by raising rates into the teeth of the storm…. RBS said the epicentre of global stress is China, where debt-driven expansion has reached saturation. The country now faces a surge in capital flight and needs a “dramatically lower” currency, a fresh leg of the rolling global drama that is likely to play out fast and furiously…. The next action by the Fed may be a humiliating volte-face and a rate cut…. The sell-off could become self-fulfilling and quickly metamorphose into the next global crisis. (Financial Post)
Bank of America sounded a similar alarm to this one from the Royal Bank of Scotland (though not worded as strongly). So did Switzerland’s largest bank, UBS.
Suddenly everyone wants to jump on the stock-market-crash bandwagon. I think the rapid change is because they don’t want to be caught with their pants down, looking really stupid for not having seen this coming. You see, the bear market that I’ve been predicting would hit right now is suddenly so clear that the bulls are panicking with “sell everything” orders.
NOW, after the crash has begun (One of the major stock indexes, the Russel 2000, touched briefly into bear territory on Monday.) the permabulls are warning their clients to get out of the way. As is so typical of their inability to see a bear market coming, the permabulls are yelling “fire!” after everyone is already running for the exits. (And that’s why you don’t want to wait until the downturn is obvious before you listen to the bears and get out.)
Even market advisors as far away as Australia can see that the US stock market is crashing. Says one Australian stock analyst,
Global equities at the point of peak bearishness: It feels as though we are right in the epi-centre of the fear, panic and confusion in global markets…. There is a crescendo of bearish headlines deeply affecting emotions and making people less rational. Many are simply increasing cash weightings and hedges within their portfolio…. There is no doubt sentiment is shot to pieces and if you look at the big macro concerns they are easily trumping economic data, hence why the market swiftly bought US treasuries and sold stocks after a strong payrolls number…. Both high yield and investment-grade credit spreads have widened, implied volatility has increased and once again, financial conditions deteriorated.
You can be certain that bearish headlines are, indeed everywhere, because analysts who generally advise people to invest in stocks don’t write that the bearish headlines are everywhere unless they know their clients can already see that. They are not announcing the news; they are admitting it.
There is nothing equivocal in any of the statements above, except that I’d counter part of the last one by saying that people are actually becoming more rational as the illusion of economic recovery dissolves into the thin air it was created from. It only seems irrational if you are a citizen of Wonderland who was foolish enough to believe the bull market had a real basis for existing in the first place. It seems irrational if you were stupid enough to believe the Federal Reserve or your favorite central bank.
Yet, even when market analysts finally start get it, they still don’t get it. Scott Minerd, who oversees $240 billion for Guggenheim Partners, says,
Look for more downside for oil, equities and credit…. The first quarter is going to be rough but ultimately we should see this as a buying opportunity. The worst is yet to come. (NewsMax)
It’s his predictable permabear statement that “ultimately we should see this as a buying opportunity” that says he still doesn’t get how far the drop will be. He doesn’t seem to be getting yet that this is a global economic collapse in the making. I guess it depends on how far out his “ultimately” goes. If he means a couple of years from now, I’ll give him that.
Federal Reserve’s second mea culpa
Even the Federal Reserve is starting to hedge its bets regarding Goliath’s success. Already, another Fed official has admitted the Fed didn’t see this coming. Two members in two weeks have come forward to say, “We got it wrong.” Last week we had Richard Fisher, a Federal Reserve official, give an I-warned-the rest-of-the-gang kind of mercy plea. (I.e., blame the others, not me.) This week, another reserve bank president steps forward:
Last week we had a Federal Reserve FOMC member state that the Fed openly talked about “front-running” the US stock market and “juicing” the market in order to inflate stocks. This week another joins him to say “We got it wrong.”
And that’s what makes a great week for me — watching members of the Federal Reserve begin to feel pressed to admit they got some things wrong. Actually, they got everything wrong, but circumstances are not dire enough yet to force that much of a confession past their squeaking lips. It’s surprising to see them admit even this much so early in the crash phase.
I just marvel at the sheer number of people who were blind enough to keep repeating that the US stock market wasn’t an asset bubble, particularly the number of reporters who regurgitated this tripe every time the Fed coughed it up.
The reason I’ve been so brazen (and boastful) about betting my blog on this crash and on a global economic collapse is that I REALLY want to rub the Fed’s nose in their own stupidity for all those years when they claimed the stock market was not an asset bubble inflated by the Fed and for all the years the Fed believed it had created a true recovery … or claimed it believed it. I also want to rub the noses or reporters in it, who mostly parroted the Fed, and I want to kick some banker barons in the shins. Hopefully, there will be a few broken brokers out of this, too.
Of course, you can suggest a more sinister reason as to why major players like all of those quoted above always make the call late: they want to get their own money off of the ship before they yell “fire” to their passengers. If you’re prone to conspiracy theories, you can accept the idea that they’re smart but corrupt captains who want to be the first to get an uncrowded lifeboat in the storm. Thus, they only yell “fire,” as they shove their own little boat away from the burning hull. (And I’d say there is good probability you are right.)
However, as one not prone to conspiracy theories (because they are always easy to concoct and begging to exist for any operation that happens outside of daylight), I’m content to think CEOs, stock advisors, economists and the Federal Reserve (especially the latter) are a lot dumber than most people think.
We foolishly believe people are rich because they are smart (or sometimes because they are thieves), while it is often just because they are really good at socializing. They can tip a martini and swing a club better than most, and so they land in grand positions. The bailout bankers are dumb because greed is blinding, as are publicly inflated egos of the kind like Ben Break-the-Banky, who authored a book to tell the world how bravely he led us out of the storm that is now about to capsize us. (Notice he’s no longer in the boat, having let his first mate, Yellen, become captain while he abandoned ship. She’ll have plenty to yell about now.)
So, it’s easy for me to believe that the Federal Reserve actually believed in Goliath — its own bankrupt plan. I have to admit, though, one reason I’m reluctant to credit them with a grand conspiracy is that I think bloated banksters actually hurt more when you pop their pomposity by pointing out how financially stupid they must have been once their ship is clearly foundering on the rocks. You see, if they’re corrupt, they already know it and don’t care; whereas, the loudly proud never know they’re really quite blind and stupid. That’s the kind of truth that can smack them between the eyes like rock.
Since truth is usually found in the balance, however, let us just conclude that they are both corrupt and stupid. (Then we can all be happy.) Corrupt enough to lie and save themselves first from their own plans, stupid enough to believe their own lie to where they are genuinely surprised when it doesn’t work.
I also want to rub the noses of all economists and market analysts in this failure as much as I possibly can. I want to raise their fool factor exponentially. I want to call a lot of attention to it because they were all too daft to learn any lessons from the first huge crash of the Great Recession, which they were also too daft to see coming! We are now seeing the second belly of that recession open up as the Fed’s artificial props are removed from under it, and I said four years ago that is what you’d see as soon as the last props were removed.
So, I want to make a big, BIG thing out of how a small guy like me, who isn’t even an economist, could see this coming, while they couldn’t, and how that small guy could see the last time coming in 2007, but they couldn’t. I want to be the finger in their eye. The reason it’s important to point out this could be seen coming by anyone willing to look at reality is this: If there are people who really did see both events coming, then the Feds & Friends cannot use the excuse that this outcome was humanly unknowable. If you’ve been following my Epocalypse series, you know it is quite knowable.
The world needs to see that the experts they trust are either incredibly stupid … or liars. Because if the world doesn’t see that … we’re going for another big round of bankster bailouts and Federal Reserve lies as people blindly trust their governments to lead us out of this mess. People will forgive the Federal Reserve or other central banks if they believe this is something no one could see coming. So, I tried to make as much noise as a little guy can before it happened in order to say, YOU CAN SEE IT COMING! That way, when it does come, you can shove me in their eye (or anyone who saw exactly when and how the failure of their plan would come).
Jobs — The Fed’s supposed biggest concern — are crashing, too
It’s not just the stock market that the Fed engineered that is now going down. The Fed’s other major goal was to improve jobs by boosting the stock market (old trickle-down economics theory). Jobs are going down now, too, though it may not look like it.
The first thing the Fed will tout in its defense of recovery is that jobs have improved. So, let’s take a look at that stellar jobs report last week from the Bureau of Labor Statistics (BLS), which claimed 292,000 new jobs in December. Ninty-Nine percent of the media (may their eyes be poked) gave that number an unscrutinized free pass as they have done with every jobs report because there is no such thing as investigative reporting any more.
Regular readers may remember I noted in passing in my last article that the jobs report was “superficial.” David Stockman now reports that only 11,000 of those jobs were real! The rest were nothing but statistical adjustments made by the BLS!
I’ll let his analysis be my explanation as to why I commented that the report was superficial and why the adjustment is BS, but here’s a quick summary: Among other tricks, the Bureau of Labor Statistics used its old “weather is bad in December and causes a seasonal drop in employment” trick as an excuse to factor the actual number of new jobs upward by what they THINK it would have been if the weather wasn’t bad. They, then, state the would-have-been as if it was.
Only problem here is that this year the weather actually wasn’t bad. In fact, the weather was unseasonably splendid in much of the US! It was practically summer in our most populated region! So, if anything, they should have done their normal adjustment in reverse and said, “There would not have even been a gain of 11,000 jobs if it were not for the unseasonably pleasant climate.
Here’s how the climate adjustment works: The BLS inflated new construction jobs by 196,000 on the basis that there would have been that many new construction jobs if not for all the snow. They managed to pass that argument off as credible last year, but what snow? Maybe their theory is that this year, all the construction workers took vacation time so they could lay out on their lounge chairs and catch the lovely winter rays. I think it’s time to take the “L” out of this department’s initials and make it the BS Department.
In truth, jobs actually plummeted! The actual new jobs (the number before any adjustments) in December usually drops to somewhere around 190,000. The actual new jobs (number before any adjustments) last year was really only 9,000, though a much higher seasonally adjusted figure was reported. So new job numbers, both this year and last year, were HORRIBLE by comparison to the actual new jobs in most Decembers. Pay, of course, dropped incrementally down, too.
(And next month watch for them to “seasonally adjust” unemployment numbers downward on the basis that most layoffs were due to the end of seasonal employment. They’ll probably even use the same number for adjustment that they used last year, even though some retailers and UPS reported hiring fewer seasonal helpers this year than last.)
We do live in George Orwell’s new world order where government agencies actually create the truth.
A true recovery, however, means the patient continues to live after life support is removed. If the patient starts dying as soon as the last life support is removed, there is no way anyone can credibly say he was ever recovering.
There never was an economic recovery
Please allow me to change my metaphor now from burning ships back to where I began with fallen giants. Economic recovery was always a giant illusion inflated by vast amounts of free fiat money, and supported in public view by tricky agencies like the Bureau of Lying Statistics (if they’re going to keep the “L” in their initials).
I have maintained throughout the Fed’s celebrated recovery period of quantitative easing and zero interest that the illusion of recovery evaporates into the same thin air the money was created from as soon as the Fed’s free money ends. Soon, even the federal government’s official BS Department won’t be able to paper over the Fed’s failure.
I have maintained throughout the “recovery” that nothing the Fed was doing was sustainable because none of it fixed any of our economic flaws. The Fed cannot fix the flaws because Fed is the flaw — right to its core. The Federal Reserve creates money by creating debt. So, to pump more liquidity (money) into the system to “juice it up,” as Richard Fisher described in his confession, the Fed created more debt, but debt is the problem. You cannot solve a problem by creating more of the problem!
The Federal Reserve is actually owned by banks, and banks are the beneficiaries of the direct deposits of all money the Fed creates, though the banksters have to share some board and committee positions with government appointees (some of whom once worked for the banks and some of whom receive much higher-paying posts at banks after serving on the Fed).
While Goliath, the Fed’s recovery plan, is dying, the Fed Philistines will continue to be the global powerhouse that rules the world financially unless a massive public outcry develops over the obvious crash of their plans as that failure now unfolds. So, my part in the very small scheme of things is to do my best to raise that cry in order to bring an end to all this nonsense before it repeats itself this year; but I cannot do my part without your volunteer effort.
More than anything else, I want to rub the Fed’s nose in this massive failure that is now going to become evident by saying, “How did you not see this coming? How could your Goliath plan of recovery NOT fail? Are you that blind or just that corrupt … or both? How could you, the money god, with all of your minions paid to crunch numbers and all of your brainy analysts, not see something that was so predictable that this unknown David could lay out the exact timing and pattern of Goliath’s fall with his little blog?”
You see, my bet and my boast is not about how smart one person is; it is about how extremely dumb (or corrupt; you choose according to your persuasion) was the Fed’s Goliath plan. Of course a dumb plan takes a dumb or corrupt bunch of Philistines to concoct the plan. I also want to point out how dumb anyone else is if they continue to believe in Goliath or in the Federal Reserve, itself, as Goliath’s fall now happens. That becomes inexcusable now that this fall was so precisely predicted and with such certainty by a mere shepherd boy surrounded by towering economists.
I’ve been so brazen about my predictions of the fall of the Fed’s giant recovery plan because this is the time this blog was made for. I really want to cut off the giant’s head now as it hits the ground. I want people to see how quickly and easily the quantitative giant crashed to the ground so that no one will allow the Fed to try to resurrect this hideous beast they created.
So, I hope your Fed-up enough to take a stand because it won’t happen without you. I’m just one small person, barely heard of. It won’t happen unless you share in the fun of poking the Fed in the eye by sharing this post via email, your own blog, backlinks in comments you leave in other discussion of news articles you come across, and via the buttons provided here. Keep putting the word out there about how the Fed has failed, cutting off excuses before they are made so they will already be unacceptable in the public mind by the time the Fed thinks of them. Then maybe their excuses, seen for what they are, will get booed off the stage.
People need to see that the Fed is completely without excuse … and so is the US government … and so it most of the media that never asked the kinds of questions that have been raised here for four years. The fact that this was foreseeable is an argument laid out here for four years so that, when the Federal Reserve’s Goliath program finally ended, people would be able to see that Goliath’s fall was completely predictable.
I’m sure you’re Fed-up. Blame congress, too, as neither party has lifted a finger to make sweeping changes in the economy. As the fake economy finally crashes and all the perps start to point the finger at each other, now is the time to turn up the flame and direct it at those who are to blame.