Wednesday, September 22, 2010

Bernanke Lied to Us

I have to change my viewpoint on the market (not the economy) due to Ben's act of lying.  Just 3 weeks ago at Jackson Hole he implied there needed to be material drop in economic activity for the Fed to consider additional policy responses.  So what had changed since that meeting?  While the economic data was not great, it did not degrade in any significant manner ... in fact that (along with the promise of QE #2) was the tenet on why the stock market was rallying, right?  Things were not getting worse?  Double dip off the table?  Yet 3 weeks later he basically hands the market a bouquet saying QE2 is coming?  Just an outright lie from this seat.  This says he already had designs on QE2 no matter what the data was saying... sort of entering office with intent to start a war with Iraq and finding the most convenient reason to do so.  Your mind is already made - you just need to create reasonings for the public.  I did think QE2 was coming but I thought Bernanke was somewhat a man of his word and would actually wait for data to come in to backstop his words - instead he already had his mind made up, and it appears whatever the data he will move.  [Sep 14, 2010: Goldman Sachs Speculates QE2 Could Begin in November]

Speaking of lying, Ben seems to be at his best doing it at Jackson Hole.  This is his lie from 2007.

In August 2007, as financial markets began to crumble under the weight of bad mortgage loans, Chairman Ben Bernanke told the Federal Reserve's annual gathering at Jackson Hole, Wyo., that it wasn't the central bank's responsibility — "nor would it be appropriate" — to protect lenders and investors from poor decision

Uhh... not so much Bernanke.

This will end badly as all the Fed's policies have in the long run.  They are a serial bubble creation machine.  As I said the past 2 years, when we look back in a decade Bernanke will be viewed as badly as Greenspan now is... just as we worshiped Greenspan when he magically could make assets rise and cause all recessions to go away (or be mild)... just as we celebrate Bernanke today.  When Ben is not simply outright wrong, he is lying.   [Jul 29, 2009: Mises.Org - the "Ben Bernanke is Wrong" Video] 

You should be very peeved.  Everything in this country is run for debtors, speculators, multinational corporate interests and the banking oligarchy.  This is just another one.... under the guise of whatever reasoning is convenient to use.  Watching the speculator class clap in glee on CNBC is disgusting..... as long as it increases asset prices, every Fed action is fine with them.  As Greenspan has telegraphed in various appearances the past year the best 'stimulus' in their eyes is the wealth effect via asset price inflation.  As if there are no knock off effects!  Bernanke is taking that playbook and running with it.

Every developed nation on earth is trying to export their way out of recession errr.... sorry, there is no recession since June 2009.  You get the drift.  Each is trying to damage their currency to make exports cheaper.  Japan just intervened last week to try to soften their currency appreciation.  The U.S. treats its currency as toilet paper (which makes your hard earned wealth worth less... but again this country is not run for SAVERS). The only saving grace for the U.S. dollar has been the "safe haven" status in the depths of the crisis in 2008 and "well it's not as bad as the Euro" in late 2009 through mid 2010.  Other than that, the currency has been trashed more or less for a decade.  Once could argue since the Fed's creation in 1913! The UK is now talking about having to QE so it too can debase its currency.  And do you think the Euro region can just stand aside when the strength of their major economy (Germany) is exports? (40% of GDP)?

You have a world full of central bankers gone wild.  Even the ECB's Trichet who used to have some restraint, now steps into any bond auction in Europe where there is risk and buys up government debt, so we can create the appearance of stability.  (nothing to see here, bond auction over subscribed... yep it is crazy how well these auctions go when a central banker with unlimited pockets buys)  Yeh that's 'free markets' at work - just another manipulation of price mechanisms.  Which is the real reason gold has been rallying - its a currency no central banker can print out of thin air.  Inflation is not an issue *here* but it sure is an issue overseas as all those fiat dollars flood into markets where there is fiscal sanity and bonds actually yield something.

Now we have to ask where all this fiat money is going to.  (hint: lots of it is headed to Asia)  Sure it will go into all risk assets, manipulating their values higher than they should be.  But if you live in a country where a central banker has gone mad it won't help you much.  If the currency falls by 1% and the price of goods goes up 2% that month - you lose.  Twice.   Right Walmart shoppers?   [Nov 10, 2009: Walmart Executive "There are Families Not Eating at the End of the Month"]   Oops, I'm sorry let me pull out my CNBC pom poms - go Team Bernanke - you've solved our ills!

Lots of this fiat money is currently flooding into soft commodities (yeh! everyone wins!) We saw in late 2007 to mid 2008 the effect of food price inflation on 2nd and 3rd world countries. Mud cakes anyone?  [Jan 30, 2008: Hungry Haitians Resort to Eating Dirt]  But who the hell cares about pricing foodstuffs out of the reach of "those people" [Apr 14, 2008: Food Inflation, Riots Spark Worries for World Leaders]- we have speculators to please in the U.S.  The biggest sin in American policy is "making the markets upset".  As long as the speculator class can take primary dealer money, lever it up 7:1 (down from 20:1 in 2008) and run up the price of any soft or hard asset - it's all good. [Apr 28, 2008: Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin] Heck who the hell cares about Americans affordability of food either [Nov 14, 2008: Wall Street Journal - A Run on (Food) Banks]... thats what the food stamp program is for right?  [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps]  [Oct 30, 2009: Costco to Roll Out Food Stamps Nationwide]   As long as the banking oligarchy and stock pickers on CNBC are pleased, I am pleased.  [Apr 6, 2008: Agflation Hits Rice - Prices Up 50% in 2 Weeks]  Cramerica style.

As for the market we are overbought in the short run with a tricky earnings season ahead... and some big gaps in the S&P 500 charts (1090 and 1110).  Those usually fill within 2-3 months of creation.  Perhaps this earnings season will be the trigger to go down and fill those holes in the chart.  But if QE2 is anything like QE1, once those gaps are filled you have to stand out of the way and let the "everyone wins" (not) scenario play out as making Americans "rich" (in nominal terms) via bubble creation v6.0 will be back on the table.* As long as you not one of those Americans who doesn't have money to put in the market to offset the purchasing power being stolen from you.  Otherwise Ben just screwed you - again.

*at least until we take a break in between QE2 and QE3 at which time the 'free market' will fall just as did post April 2010.

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