By Author Bill Bonner
Bad day for U.S. stocks on Friday … And after all that stimulus too! You put in about $3 trillion of QE… $700 billion of TARP… $23 trillion of credit guarantees … $5 trillion of fiscal deficits … and this is all you get. What a disappointment.
From British newspaper The Telegraph:
The net loss of jobs over the summer months has been entirely among men, mostly aged 25 to 54 and university educated. The cohort aged over 55 has been growing, so this is not happening because baby boomers are retiring early and happy to grow cantaloupes in Arkansas, or to play golf at Torrey Pines.
The labour "participation rate" dropped to 63.2% in July, the lowest level since the late 1970s. The rate for men is at an all-time low. The unemployment rate has been falling, but chiefly because so many people are giving up hope and dropping off the rolls.
And from The Economist:
But the… most important restraint on the Fed was the unexpected effect on financial markets of a prospective change in monetary stance. The central bank had always emphasized that tapering did not mean tightening. Provided asset purchases remained above zero, the Fed's balance-sheet would keep growing and monetary policy would still be loosening. Separately, the Fed never wavered from its pledge to keep the federal-funds rate near zero at least until unemployment had fallen to 6.5%.
Nonetheless, investors radically repriced their expectations of Fed policy and fled positions predicated on a policy of QE ever after. Bond yields and mortgage rates have shot up about a percentage point since May; the housing market has cooled. Mr. Bernanke fretted this "rapid tightening of financial conditions in recent months could have the effect of slowing growth," a problem that would be "exacerbated if conditions tighten further.
As we expected, the Fed made its announcement on Wednesday: No Tapering. The next day, gold and stocks shot up. It looked as though it was going to be clear sailing from here to eternity (or at least to 25,000 on the Dow). Heck, the Fed buys $85 billion of U.S. government and agency-backed bonds a month. This is putting huge downward pressure on bond yields… and keeping borrowing costs ultra low. Speculators can borrow money at below the rate of inflation! What's not to like about that? But boo-hoo, look what happened on Friday. Dow down 185. Gold down $36 an ounce.
Let's not read too much into this. It could have been profit-taking by the gamblers who bet on a "no taper" announcement. Still, the lack of follow-through raised questions: How is it, again, that the Fed's money printing makes U.S. companies more valuable? Autumn arrived over the weekend. This is a dangerous season. The chilly winds begin to blow… and people begin to wonder: What next? We have no ready answer. But we have plenty of ready questions. First, a question for investors betting on higher stock prices: Don't you know anything about investing? The idea is to buy low and sell high. If you buy high you have already screwed up. Stocks may go higher. But who will you sell them to?
And a bonus question: When the market has already priced in "QE Forever," what's left to make prices go up more?
A Question for Ms. Yellen
Second, we have a question for Janet Yellen: What's a nice lady like you doing in a place like this? Our main rival for the Fed post (not to mention the other 50,000 standing in line ahead of us - every one of them with better credentials… a better attitude… and a more winning personality) is Janet Yellen. The press says she is "cheery," "motherly" and "sensitive." From all we have read, she seems to be a nice ol' gal. How then, did she end up at the Fed… and be slated to take over the reins of the organization next year? Doesn't she know what they do there? Perhaps not. So, as a public service, we will spend a few words explaining. The Fed, Janet, is supposed to bend the economy in a direction that is agreeable and profitable for the people who own it. It is the head bank of a vast cartel… and charged with making sure its members, clients and masters make money.
Since banking is not a business that creates real wealth, it can only enrich its owners by taking money from other people. It does that by:
- printing money (and buying the banks' deadbeat assets);
- fixing interest rates at artificially low levels (taking money that should rightfully belong to savers); and
- generally encouraging inflation to rob everyone.
The Fed says it is boosting employment. What it is really doing is stealing some of the working classes' wages through inflation, coincidentally making labor cheaper. Janet, you should know this by now. There is nothing the Fed does - except perhaps its cocktail receptions - that is not criminal, immoral and, from a public prosperity point of view, counterproductive. Get out while you can. Leave the job to us.
The Secret of America's Success?
Now, for our third question. This one to colleague Justice Litle: When you have decided to end it all by jumping out of a tall building, does it help to move to a higher floor?
If you read Justice's bullish investment case for the U.S. on Friday, you'll know that Justice and I agree on one thing: The U.S. is a great empire. All great empires come to an end. The question before us is, when? Your Rogue Economist believes the top is already in. Justice believes it is still ahead.
Justice's reason for thinking so is that recent figures show a boom in U.S. energy production. Energy - and the ability to transform it into stuff - is the secret of America's success. Without cheap, abundant oil from Texas, and North Dakota, the story might have been different. When the U.S. wells dried up… oil prices shot up… and the U.S. had to fight wars in the Middle-East to assure its access to oil. It looked as though the American Empire's days as the world's superpower were numbered. But then, says Justice, along came fracking: the game changer. Now, Justice believes the U.S. is on its way to another 1950s-style boom.
In response to our argument - that it's too late, because the U.S. economy has been zombified - he answers that "Zombie America is no match for "Dynamic America." But Justice, it's not a competition. It's not one against the other. The nature of the U.S. economy has changed. Energy (investment, resources, capital) now serves the interest of the zombies.
The pay-off from all our major industries is now negative. Health, education, defense and finance - all have been zombified. Together they already claim more resources than America can produce. That is the implication of a structural federal budget with a hole of some $200+ trillion in it. That's the difference between what the feds have committed and what they've got.
Any additional resources… from fracking or wherever… have already been claimed by the zombie economy. Boom in the United States? Maybe. But it is like the arrival of a liquor store delivery at a wild frat party - more dangerous than helpful.