Janet Yellen

Dear Janet, you find yourself in a terrible conundrum.  You understand as well as anyone that managing the trickle-less down recovery and the resulting tenacious dislocation between the market and the economy is becoming unmanageably expensive; about $13T to date.  And while the hint of a rate hike over the past year has sent the dollar up some +15%, some suggesting a sign of strength for the American economy, it really is not helping the situation now is it??

Typically, one method of MOPE that the government and the FED love to engage in is seasonally adjusting economic figures, which means that they look at the real numbers and simply re-jig them until they better fit their “models”.

The system is corrupt… and dangerously dysfunctional. But why does no one say so? Opinion makers such as Paul Krugman and Larry Summers misunderstand intentionally. But who speaks for the next three decades?  Everyone wants more credit, more inflation, more bubbles, more subsidies, and more special privileges. Who’s on the other side of the trade?

Q. How else does this period of apparent equity overvaluation compare to equity booms in the past?

Robert Shiller: This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren't. It's an interesting phenomenon.

Central banks took over everything and thus changed everything; they cannot simply declare themselves successful and just give it all back. That might (stress might) have been possible had it actually worked, a true and robust economic recovery to smooth the shift, but the majority part of that November 2013 recoil was the growing acceptance, throughout 2014 and into 2015, that it was never coming in the first place.

Rates have been so low for so long, that many of the traders who will be on the front lines if and when the Fed ever does decide to start down the long path to normalizing policy have never, in their professional careers, seen a rate hike. “The experience that many investment operations have with rising rates for most of us is very low for some it’s nonexistent," Jeff Gundlach warns.

Yesterday Japan amazed everyone when it reported that its unemployment rate had dropped yet again, this time to 3.3%, the lowest since April 1997. The paradox is that while the number of Japan's unemployed dropped by 20,000, the number of those employed plunged by 280,000! Or as Goldman calls, it "growth in jobholders looks to have peaked amid a lack of recovery momentum in the economy"

The ‘war’ word is being increasingly heard internationally as the U.S., EU, Russia and China adopt provocative postures over various disputes including Ukraine and in the Pacific. War with the U.S. is “inevitable” if the U.S. involves itself in the dispute which has arisen over the Spratley Islands in the South China Sea according to China's state controlled newspaper the Global Times.

"The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic. But as I have said many times before, these policies act more as economic depressants than they do as stimulants. As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy.... We prefer the ability to manipulate figures rather than allowing the figures to tell us things that we don't want to hear."

In an important interview with Reuters in 2012, John Butler suggested that if one country - he cited Russia - were to back its currency with gold it could cause a 20% collapse in the dollar in just 24 hours. In order to stabilise the currency and in an attempt to preserve the reserve currency status of the dollar, the U.S. would be forced against its will to back its currency with gold.

Some say that eliminating the welfare-warfare state and the fiat currency system that props it up will cause the people pain. The truth is the only people who will feel any long-term pain from returning to limited, constitutional government are the special interests that profit from the current system. A return to a true free-market economy will greatly improve the lives of the vast majority of Americans.

China launches international gold fund with over 60 countries as members. The large fund, which expects to raise 100 billion yuan or $16 billion, will develop gold mining projects across the economic region known as the New Silk Road.

The last time large speculators were as aggressively buying silver as last week was September 1997. The net long non-commercial positioning in Silver futures, according to the CFTC rose almost 22,000 contracts last week to a 3-month high (which is closing in on the 'longest' since 2005). Gold, not be out-precious'd also saw major buying. Net speculative longs in gold added over 45,000 contracts - the most since July 2005 - lifting net long positions to their highest in 3 months. Perhaps, just perhaps, as Alhambra's Jeffrey Snider notes, this is due to Yellen putting the 'dollar' back on suicide watch.

The financial world today is now an island on its own – separated from the real economy, as can be seen by the paradox of record high valuation in the stock market coinciding with record low inflation, employment , productivity and no hope. There is asset inflation, but deflation in the real economy. When the world has been this long at the zero-bound, the misallocation, the inability to reform, and a toolbox without new tools creates a mandate for change. "I expect stocks to trade sideways for the balance of 2015 and have now sold all my fixed income, increased my gold exposure, and I’m looking to buy mining companies and overall to increase my exposure to commodities beyond the normal allocation."

“Ignorance is not bliss – it is oblivion. Determined ignorance is the hastiest kind of oblivion.” As investors, we have all been warned. Not by the future, but by the past.