Rate of Change

There is an argument to be made that this could indeed be a "new market" given the continued interventions by global Central Banks in a direct effort to support asset prices. However, despite the coordinated efforts of Central Banks globally to keep asset prices inflated to support consumer confidence, there is plenty of historic evidence that suggest such attempts to manipulate markets are only temporary in nature.

Today’s style of heavy-handed monetary central planning destroys capitalist prosperity. Real capitalism cannot thrive unless inventive and enterprenurial genius is rewarded with outsized fortunes. Warren Buffett’s $73 billion net worth, and numerous like and similar financial gambling fortunes that have arisen since 1987, are not due to genius; they are owing to adept surfing on the $50 trillion bubble that has been generated by the central bank Keynesianism of Alan Greenspan and his successors.

Explosive moves ahead...

By now it should be clear, without the flow of Federal Reserve funny money, the wedge between the reality of collapsing macro- and micro-fundamentals and ever-expanding valuation hope-based stock prices is bound to close... and that is why the following 2 charts must be terrifying for Janet (and every asset-gathering commission-taking talking head out there.. oh and Steve Liesman).

"The elderly dependency ratio is in the early stages of a relentless rise that doesn't hit an interim peak until around 2036, over two decades from now." The "structural shift" in the dynamics that drove the economy and financial markets in the 80's and 90's will not likely exist again for quite some time. Of course, if this was not the case, would we still be needing massive Central Bank interventions to support global economies and markets? Meh? What could possibly go wrong? [sarcasm alert]

The market is currently engaged in the longest bull run in history without a 10% correction. The decline in momentum, the weakness in economic underpinnings and lack of Central Bank interventions (not to mention the threat of an increase in overnight lending rates) certainly provide the necessary ingredients for a sharper than expected correction this summer.

While The Fed and its apologists (except for Jim Bullard) remain firmly attached to the idea that it is the 'stock' (or absolute level) of Fed Assets that represents the amount of policy-easement and not the 'flow' (rate of change), we have explained numerous times that this is complete rubbish. With the Federal Reserve balance sheet hitting 6-month lows this week, we thought the following 4 pictures would paint more than a thousand words on why The Fed will need to restart the flow soon... or the game is up.

Something serious is brewing under the hood...

While it is entirely likely that "economic bulls" will get a bounce in Q2 and Q3 due to pent-up demand from the previous two-quarters, the strength and sustainability of that bounce will be critically important. After all, in just a few short months, the cold breath of winter will once again be upon us.

The science of economics has taken a decidedly wrong turn sometime in the 1930s. In the field of monetary science specifically, sober analysis has given way to broad-based support of central economic planning, with both policy makers and their advisors seemingly trying to trump each other with ever more lunatic proposals.

The fairy dust peddlers who moonlight as Wall Street economists were out in force yesterday after March retail sales came in with a positive m/m change for the first time since November.  This purportedly confirms that we’re back on track for a big rebound in Q2. In any event, what happens next is not too hard to figure. Unless you are a Wall Street economist.

There are a host of signs as of late, including price momentum and internal deterioration in the financial markets, that suggests the risks are rising. For investors, this is critically important since the majority of major market reversions are coincident with economic recessions. While it is very likely that economic activity will bounce in the second quarter (data does not move in a straight line), it will likely be weaker than currently anticipated.

While everyone is focusing on tomorrow's Nonfarm Payrolls number, the far more important number is today's Factory Orders data (because it is far less fuged, adjusted and generally doctored to preserve faith in a contracting economy). Because according to America's manufacturing output, not only is the country already in a recession but it is getting worse with every passing day.

It's become a running theme, at least since last September, but the latest release of CPI numbers from around the world has brought our simple average World CPI proxy to its lowest level since the financial crisis. For the period ending in February, our World CPI proxy hit just 1.01% year-over-year. This is the lowest rate of change since November 2009. The year-over-year rate in our World CPI proxy has been falling for six months straight.

At the end of the day there is a considerable irony. The Fed has now become the tool of liberal Keynesian do-gooders - exemplified by the school marm who heads it. But its policies are exclusively benefiting Wall Street and the top 1%. They are redistributing income and wealth to the top, not the bottom of society as liberals have always claimed. Needless to say, main street does not need that kind of “help”. And it would do far better on its own hind legs if the monetary politburo joined its Soviet colleagues in the afterlife of mistaken ideologies.