Purchasing Power

On December 23, 2013, the U.S. Federal Reserve (the Fed) will celebrate its 100th birthday, so we thought it was time to take a look at the Fed’s real accomplishment, and the practices and policies it has employed during this time to rob the public of its wealth. The criticism is directed not only at the world’s most powerful central bank - the Fed - but also at the concept of central banks in general, because they are the antithesis of fiscal responsibility and financial constraint as represented by gold and a gold standard. The Fed was sold to the public in much the same way as the Patriot Act was sold after 9/11 - as a sacrifice of personal freedom for the promise of greater government protection. Instead of providing protection, the Fed has robbed the public through the hidden tax of inflation brought about by currency devaluation.

The EU may have many worries and woes that are slapping it around its face right now (and it could be said for a number of years), but there is one thing that is worrying economists more than the sovereign-debt crisis and that’s the fact that prices are not increasing enough.

A dispassionate overview of the investment climate and what to expect this week.  

The following chart, from the Balyasny Asset Management Q3 letter to investors, show just that: the magic of hedge fund leverage in the New Normal.

Draghi introduced still-more-easing into Europe this morning as his surprise cut created turmoil in markets. What this means today, tomorrow, or next week is anyone's guess. What it means in a larger context is not...

Are we all wealthier because the Dow is at ~ 15,000?  Should Katee Sackhoff be the next Fed Chairman?

As Mike "Hidden Secrets Of Money" Maloney has said many times before, the economic crisis of 2008 was only a speed bump on the way to the main event.  He believes that before the end of this decade there will be an economic crisis so historic that it will eclipse the crash of 29 and the subsequent great depression.  He also believes it is both unavoidable and inevitable, because it is merely the free market releasing the stored up energy from decades of economic manipulation. As Maolney notes, "the best investment that you will ever make in your lifetime is your own financial education," and the following provides a succinct reminder of the top reasons to buy gold and silver...

The philosophical roots of Janet Yellen's economics voodoo, it seems, are in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman). The following excerpt perfectly encapsulates her philosophy (which is thoroughly Keynesian and downright scary): Fed Vice Chairman Yellen laid out what she called the 'Yale macroeconomics paradigm' in a speech to a reunion of the economics department in April 1999. "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not," said Yellen, then chairman of President Bill Clinton's Council of Economic Advisers. "Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes," although there is "uncertainty with which to contend." She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.

The Fed will have to increase QE (not taper it) because systemic debt is compounding faster than production and interest rates are already zero-bound. Lee Quaintance noted many years ago that the Fed was holding a burning match. This remains true today (only it is a bomb with a short fuse). Thirteen years after the over-levered US equity market collapsed, eleven years following Bernanke’s speech, five years after the over-levered housing bubble burst, and four years into the necessary onset of global Zero Interest Rate Policies and Long-Term Refinancing Operations, global monetary authorities seem to have run out of new outlets for credit. In real economic terms, central bank policies have become ineffective. In other words, the US is now producing as much new debt as goods and services.

Real estate guru Mark Hanson updates his housing view following this week's dismal housing industry data:

Sept. Pending Sales... the largest MoM drop since Sept 2001... not 2011... yes, 2001.

Don't let them tell you 'this is normal for Sept'. The 'oh-crap' moment is now in the can. Going forward, "Existing Sales" volume will disappoint on a YoY basis for several quarters. There is no way around it...

Paper gold in the developed world may trade based on the whims of marginal momentum chasers, and of course, the daytrading mood of the BIS gold and FX trading desk, but when it comes to physical gold and China's appetite for it, one word explains it best: unstoppable.

After briefly becoming the strongest currency in the world for 2013, yesterday's stunning inflation report out of the Eurozone has not only left the massively overblown European recovery story in tatters (but... but... those soaring PMIs, oh wait, John Paulson is investing in Greece - the "recovery" is indeed over), has sent the sellside penguins scrambling with the new conviction that the ECB now has no choice but to lower rates once again, either in November or in December. So with everyone confused, we were hoping that that perpetual contrarian bellwether Tom Stolper, who just came out with a report, may have some insight. And sure enough, while the long-term EUR bull admits that "the ECB could move the EUR/USD cross by about 5 big figures by cutting the refi rate by 25bp" and that "it is quite possible that we will see EUR/$ drop further towards 1.33", he concludes that "an ECB rate cut could turn out to be a buying opportunity to go long the EUR." And now we know: because what Stolper tells his few remaining muppets to buy, Goldman is selling: if and when the ECB cuts rates, do what Goldman does, not what is says: sell everything.

While the pile of debt keeps growing and monetary intrusion becomes more drastic by the day, there’s almost no talk of inflation. A growing number of investors ask themselves this question.

There was a time when the Fed's QE was, at least on paper, supposed to generate jobs (the broad inflation will come on its own, in due course). After all, the prospect of injecting $85 billion in liquidity into  a market with the sole goal of pushing the stock markets that benefit the purchasing power of about 10% of the population would hardly have received broad approval even by the co-opted Congress. So, to all those who still naively claim Fed is not the sole reason for the market's relentless march higher, those billions in liquidity must go into the economy, and specifically into job creation, right? As a result, we decided to back into what the average private sector job has ended up costing the US population in pure dollar terms (which in turn ultimately manifests itself in terms of unsustainable government debt and pent up inflation) via the Fed's monetary pathway. Well, according to the ADP data released earlier, in which a paltry 130K private sector jobs were created in a month in which the Fed, as always, injected $85 billion, the bottom line came to a whopping $654K per job! And taking the average job growth throughout 2013, this number, as can be seen on the chart below, is a laughter-inducing $553K!

Having previously exposed the world to the "nominal stock market cheerleaders," it is clear that Kyle Bass sees things as only having got worse among developed nations. In fact, the following interview shows that he does not fear US losing its credibility since "developed western economies with the largest debt loads are all in the same boat." The discussion expands from the debt ceiling debacle to bonds and stocks, "given the lack of nominal yield in the bond market, all of the new money is going to continue into stocks. The interesting thing is it’s going to make the rich people richer and the middle and lower class won’t be any better off, which is the opposite of what the administration is trying to pull off," adding that being in stocks "is not your choice," thanks to Fed repression and that deficit contraction is all that can stop the Fed now.