Purchasing Power

The Fed now has to choose between two bad options: either keep pushing down the dollar and let oil's inevitable rise trigger a recession, or let the dollar recover and watch stocks crater as the "risk trades" reverse. If the dollar Bears have to cover their short bets, the ensuing rally in the dollar might well be explosive and self-reinforcing. If the Fed lets the dollar depreciate in an uncontrolled fashion, then we may well end up with the hyper-inflation (loss of faith) that many expect. My question remains: what course of action will benefit those issuing the whispered orders to their lackeys and toadies on the Fed and in Congress? Will a disorderly and disruptive collapse of the dollar serve the Financial Power Elites' best interests? I don't see how it would. Rather, I see it wreaking great damage on their holdings. Thus it wouldn't surprise me in the least were the Fed to shock the markets with a "surprise" rate increase within the next few weeks or months. Destroying the real economy to maintain the "risk trades" is a foolhardy way to close down a lose-lose position.

Silver's nearly 3% surge in trading in Asia may indicate that the long expected short squeeze may be underway. Bullion banks with very large concentrated short positions may be being forced to buy back their short positions – propelling silver higher. This could see silver surge over the record nominal high of $50.35/oz in short order. At the same time caution is merited as silver has risen nearly 10% in April so far and over 33% year to date. Speculators need to be very cautious as margin requirements may be increased again and profit taking could lead to sharp falls in price. Leveraged speculation is extremely high risk and should be avoided by investors and savers. Proof of the lack of animal spirits in the silver marker is seen in the data which shows that speculative sentiment on the COMEX (as seen in the Commitment of Traders/ COT data – see chart below) is subdued. While the total silver ETF holdings increased to a record, they are not far above the levels seen in December 2010 (see chart above). Importantly, even at $41.30/oz the dollar value of the total silver ETF holdings remains very small at just over $20.5 billion. To put that number in perspective, today bankers put a prospective value of around $60 billion on Glencore, one of the world’s largest commodity trading companies. BP has set up a fund worth $20 billion to cover legal claims from the oil spill disaster.

Just another account of why the time for sound money is upon us.

General Tommy Franks, the rather straight-talking former commander of the war in Afghanistan way back in 2001, once described US defense policy wonk Doug Feith as “the dumbest fucking guy on the planet.” Feith, a bumbling architect of the failed Bush Doctrine, now has an intellectual match in Christina Romer, the former Chairwoman of Barack Obama’s Council of Economic Advisors. Romer appeared Thursday on the Daily Ticker, leaving no doubt that she should be the undisputed frontrunner for the Nobel Committee’s much anticipated Doublethink Prize. Warning, do not watch this video while eating: food projectile WILL permanently damage your computer.

But please don't show these statistics to anyone that is feeling depressed or that has just lost a job - it might push such a person over the edge.

One of the sad side effects of the recent record in food stamp participation is that apparently the 44.2 million Americans who now subsist below the poverty line and rely on the government for basic food needs, have become quite a drag on otherwise insolvent state and local governments. And with monthly increases projected to keep rising in line with the Russell 2000 as the Wealth Effect is constrained to Wall Street, and no end in sight to the Poverty Effect, states are getting nervous. Never fear: the US taxpayer is here. In a press release, the USDA has just announced that it "will award grants to improve access to and increase participation in the Supplemental Nutrition Assistance Program (SNAP). The grants are for state and local governments and private non-profit organizations to develop projects that simplify SNAP application and eligibility systems and find efficiencies in the administration of the program with the goal of providing critical nutrition assistance to those in need." Translation: the Fed is about to add the bailout if the Food Stamp program to the infinite list of subsidies that rely exclusively on the generosity of Vassarionovich-Packard.

Not quite. Give it a few hours: it just hit $39.70. Then we expect the Hunt High should be taken out shortly thereafter. And not to be left out of the party, gold just hit another all time record as well. At this point, Bernanke is officially panicking.

Since it is now obvious to even the back office that Jan Hatzius makes monetary policy in the US (just note the spike in QE3 anticipating factors following his weak assessment of the weak Services ISM earlier), it probably makes sense to present his response to the policy that he through his predecessor Bill Dudley, helped enact. Below is the Goldman take on the FOMC minutes. Ignore the house of mirrors effect.

The very same banks that taxpayers bailed out, and saved from going completely belly up, are actually making consumers pay once again in the form of higher Oil prices, and the resultant higher gasoline prices at the pump

Sure we will hire more workers for the same total amount of money. This is what is known as the Vietnamization of America,...

Punchline from Dudley's Puerto Rick speech just hitting the wires: "We must not be overly optimistic about the growth outlook. The coast is not completely clear—the healing process in the aftermath of the crisis takes time and there are still several areas of vulnerability and weakness. In particular, housing activity remains unusually weak and home prices have begun to soften again in many parts of the country. State and local government finances remain under stress, and this is likely to lead to further spending cuts, tax increases, or job losses in this sector that will offset at least a part of the federal fiscal stimulus. To sum up, economic conditions have improved in the past year. Yet, the recovery is still tenuous. And, we are still far from the mark with regard to the Fed's dual mandate. In particular, the unemployment rate is much too high." Word count of iPad: zero.

Longtime readers will recall that we've had several conversations here regarding the impact that the Fed's quantitative easing policy is having on the costs of everyday food items. Soaring prices of agricultural commodities are going to continue to have a devastating effect on the purchasing power of average Americans and consumers around the globe. Since prices have now recovered some from the selloffs after the Japanese earthquake and tsunami and since there is no end in sight to QE, I thought it was time to once again take a look at out favorite commodities and assess where their prices may be headed over the spring and summer.

The hedge fund industry's strong rebound from the credit crisis has prompted investors to ask whether some funds have grown too large and inflexible to keep delivering bumper returns for which the sector is famous. Are these concerns justified?

Goldman's Jan Hatzius, who whether he likes it or not, is probably the biggest variable as to whether there will be a QE3 or not, as every other Wall Street "strategist" immediately parrots what Hatzius says will happen (in no small part due to Hatzius' close relationship with NY Fed's Bill Dudley) has just released a hypothetical Q&A session in which he provides what potential answers to questions during Bernanke's first ever scheduled press conference on April 26 of this year might look like.  In order to keep the dodecatuple reverse psychology mystery to a maximum, Hatzius also provides what Goldman's answers would look like pari passu with those of the Fed (which is not all than ironic: after all the Fed gets its teleprompted lines straight from the corner offices at 200 West). So for all forensic linguist/economist/psychologists who are hoping to get an extra ounce of informational clarity on the future of monetization post June 30, here it is. Good luck.

In case you wondered where the title for this piece came from, it was actually the message that popped out my fortune cookie during a meal on Monday night. It just summed up so many things for me. It summarized why our culture is so damaged. At the core of the malignancy killing the nation is the fact that we possess the world’s reserve currency that can be created at will out of thin air and forced upon goods producing nations (whether manufacturing or resource goods). This means we do not need to produce to consume, which hollows out the entire core of the economy over time and has made us the generally lazy and decadent society we are today. I mean take for example the C announcement recently of a reverse 1 for 10 stock split. I haven’t heard such an embarrassing press release since reading about how U.S. taxpayers are going to make money from the bailouts. So for the last year all I heard on propaganda channel CNBC was how once C’s shares got above $5 it would attract a whole new class of investors and the shares would soar. Well the stock wasn’t able to hold above $5 so look what happened. Magic, they are just going to make the stock trade at $45 with this scheme. Bankers can’t lose, didn’t you get the memo? Oh and they are paying a whole penny a share in dividends. You have got to be kidding me guys. Pathetic.