Federal Reserve

In a recent survey not a single major central bank could provide an example of an accurate “a priori” recession forecast. The silence from the Federal Reserve, European Central Bank, BOE, BOJ and the Bank of Canada is deafening.

In the end, we are just human. Despite the best of our intentions, it is nearly impossible for an individual to be devoid of the emotional biases that inevitably lead to poor investment decision making over time. This is why all great investors have strict investment disciplines that they follow to reduce the impact of human emotions. Take a step back from the media and Wall Street commentary for a moment and make an honest assessment of the financial markets today. Does the current extension of the financial markets appear to be rational? Are individuals current assessing the "possibilities" or the "probabilities" in the markets?

The public-to-private sector "revolving door" has crossed into the macabre twilight zone.

Confidence in central bankers is now hanging by a thread. Mario Draghi (and his fellow Goldman Sachs alum Mark Carney at the Bank of England, for that matter) might want to adopt a little humility before that thread snaps completely. It is always tragic when we filthy peasants stop banging rocks together momentarily to listen to the awe-inspiring intellects at the central banks, only to misunderstand them. Perhaps the real problem is one of overconfidence. Not our overconfidence. Theirs.

Paul Volcker and Alan Greenspan were the Elvis and Beatles of this movement – the first to see widespread fame for their efforts. Then came Ben Bernanke, perhaps the Jimi Hendrix or Led Zeppelin of his day, taking existing tools and pushing them in new, previously unconsidered, directions.  Now, we have Janet Yellen and Mario Draghi, whose legacies are as yet undefined. They may end up like the next generation of rock stars from the 1970s – something like Bruce Springsteen, with a deep focus on common people in his music. Or, they could be the Bee Gees, who focused simply on commercial success. Only time will tell.

To help Main Street, the Fed must stop incentivizing speculation over investment and end policies that have shifted wealth and income to the top of the wealth pyramid. Main Street's woes are largely structural: the high cost of regulations, the soaring cost of healthcare insurance, the artificial-scarcity costs imposed by cartels enforced by the federal government and the pressures generated by globalization and automation. The Fed can't solve those problems, but it can certainly stop enriching the already-super-wealthy at the expense of the rest of us.

The US Federal Reserve (Fed) and European Central Bank (ECB) have created a very dangerous situation. And it is one that few if any investors are assessing.

Monetary policy 'rules' are no more accurate at determining interest rates than meteorologists are at forecasting the weather. The only difference between the two is that weathermen are precise on occasion, whereas the federal funds rate under the Taylor Rule is, at best, less wrong. Setting the price of money and credit in the name of unleashing the economy’s supposed potential output is the equivalent of enacting price controls on milk to unlock its full buying power. It’s a fallacy that cannot be achieved. The sooner the Fed pawns off its printing press, the sooner its market distortions will be lifted; and the sooner that each individual will be able to make rational decisions that make sense for not only himself or herself, but for the economy at large as well.

"It is our humble belief that the consensus at the Fed does not fully understand the magnitude of the problems in corporate credit markets and the unintended consequences of their policy actions."

You know the one thing Mark Zuckerberg with all his Billions can’t do today without causing a media sensation throughout Wall Street? Hint: Sell. If we were in fact at the edge of a bubble in the Valley – how would one be able to sell at the top without bringing on some negative feedback loop in their stock price? With this newly formed “Initiative” any selling is now wrapped into a wonderful meme of “We’re not selling to profit. (or preserve) It’s for charity. And we’ve stated openly we were going to do just that. So, nothing to see here, please move along, thanks so much." Remember, also, this year is the first year that the once Holy Grail of “IPO’s to the promised land” have been mired in quicksand.

And will Yellen keep yellin'?

The market is now officially so broken, that the biggest HFT-player no longer even makes any sense.

But Gold and Silver I figured were dead in the water until the Fed announcement on December 16^th and they both showed signs of life from the long side on Friday.

The mainstream media is increasingly suggesting that we have once again entered into a 'Goldilocks Economy.' The problem is that in the rush to come up with a 'bullish thesis' as to why stocks should continue to elevate in the future, they have forgotten the last time the U.S. entered into such a state of 'economic bliss.' You might remember this: "The Fed's official forecast, an average of forecasts by Fed governors and the Fed's district banks, essentially portrays a 'Goldilocks' economy that is neither too hot, with inflation, nor too cold, with rising unemployment." - WSJ Feb 15, 2007. Of course, it was just 10-months later that the U.S. entered into a recession followed by the worst financial crisis since the 'Great Depression.'

Whether or not the Fed actually manages to raise rates in the real world is less important than maintaining USD hegemony. No empire has ever prospered or endured by weakening its currency.