Let’s start with this morning’s article by the great Chris Martenson, who wrote of how rising food costs are escalating the odds of global unrest. Specifically, the higher the percentages of income people pay for food the greater the odds of unrest. This is exactly what we wrote in last year’s “Inflation and Arab Spring” – as highlighted by the below, damning chart prominently featuring Egypt, India, and the “Fragile Five” nations.
Global food prices are at or near all-time highs despite the worst cumulative economic environment of our lifetimes which should tell you all you need to know about the level of worldwide money printing and the planet’s ability to affordably accommodate the needs of a skyrocketing population – as we discussed in “population growth supersedes all.” Moreover, Martenson notes how the correlation of energy and food prices is so high, it can logically be deemed causation; which bodes ominously, given oil prices consistently above $100/bbl. – with a clear, long-term upward bias.
Last year, we deemed food inflation to be the “most important reason to own precious metals;” and thus, with Precious Metals being held well below their cost of production – yielding soaring PHYSICAL demand – there has never been a more important time to protect one’s assets. As we have been discussing ad nauseum, droughts in California and Brazil – plus, “other factors” like money printing – have caused average U.S. food prices to surge 23% in the past four months alone. And now that major supermarket chains like Safeway and restaurant chains like Landry’s plan to start passing through such costs. U.S. food inflation is about to become a MAJOR issue.
To wit, this morning’s April CPI came in at +0.3%, compared to yesterday’s 0.6% increase in the PPI. Yes, I know all such data is manipulated and barely measurable to start with. That said, the trend is consistent with what Safeway and Landry’s are saying; and we assure you, when it comes to price trends, they rarely – if ever – work in the consumer’s favor particularly when Central bank printing presses are running 24/7. And by the way, take note that said CPI – government “massaging” et al – was up exactly 2.0% year-over-year. In other words, no longer below the Fed’s “2.0% target” which “Whirlybird Janet” touted last week as a cause celebre.
And it’s not just Safeway – the nation’s second largest supermarket chain and Landry’s – one of the nation’s largest restaurant chains but Wal-Mart, the nation’s largest food retailer as well as indicative businesses like discount retailer Kohl’s and machine equipment manufacturer John Deere. Today, Wal-Mart’s earnings were less than expected citing diverse reasons from weak demand to higher taxes related to the implementation of Obamacare and, of course, “the weather.” All else equal, one would expect earnings to rebound in the second quarter, right? You know, when spring replaces winter? Well, guess what? Wal-Mart anticipates a potentially significant decline in second quarter earnings, too and you can bet your bottom dollar (no pun intended) that the aforementioned gap in the CPI and PPI is part of the reason.
Worse yet, items like Obamacare are here to stay and likely will dramatically increase corporate costs permanently – yielding further pressure to reduce payrolls and the full-time status of those that remain. And sadly, additional government-created cost issues – like soon-to-be-mandatory minimum wage increases – will only make things worse. That said, wages are too low to support families in today’s highly inflationary environment, irrespective of competitive and/or socialist factors – as highlighted, in spades, by today’s fast food strike in 33 countries protesting what many refer to as “poverty wages.” Which again, brings us back to our focus on unrelenting population growth, particularly in nations with horrific demographics like the United States – where “poverty wages” or not, fast food job competition is too intense to yield upward pressure of any kind. And thus, increased demand for government entitlements, yielding increased money printing, declining work incentive and draconian laws, etc.
Next up, the horrifying GDP data from Europe this morning. For the first quarter, total Euro Zone GDP growth was a whopping 0.2% compared to an equally appalling 0.3% in the fourth quarter and “expectations” of a 0.4% print. Hmmm, 0.2% in the Euro Zone and 0.1% in the U.S. Gee, I wonder if the same DLITR, or “Don’t Let it Turn Red” algorithms – that support the “Dow Jones Propaganda Average” – are also utilized to prevent negative GDP readings. More specifically, French growth was ZERO, whilst the Netherlands and all the PIIGS – other than Spain which was barely positive – were in solidly negative territory. Ominously, the continent’s “leader,” at +0.8%, was Germany; which yesterday, reported its largest ever decline in investor expectations when its widely watched ZEW index plunged from 43 in March to 33 in April. According to the MSM itself, the market is “betting on ECB action” at its June meeting or as we have long deemed it, “Draghi’s Reckoning Day.” Trust us, it’s coming, as sure as night follows day; particularly now that PIIGS stock markets like Greece are in steep decline. All that’s left to “seal the deal” is some fabricated “deflation” data – which is guaranteed to come, despite major European cities like London, Frankfurt, Edinburgh, Berlin, Paris, and Zurich having the highest gasoline prices on the planet outside of Hong Kong – at roughly $9/gallon.
As for today’s primary topic, I was originally referring to Japan which is desperate to “prove” Abenomics is “working.” To wit – as we discussed last week – the BOJ is terrified of the Nikkei breaking below 14,000; and thus, losing the pre-Abenomics stock gains that are now considered the only “evidence” of said “success” – just as the Fed unsuccessfully has attempted to prevent Treasury yields from surrendering their “pre-taper” gains. As readers know well, Japanese retail sales have literally free-fallen in recent months – a particularly ominous trend, given that spending typically rises ahead of major sales tax increases. Moreover, Japan just reported its largest trade deficit EVER; and thus, there is simply no way GDP could possibly have grown sharply, if at all. And thus, this morning’s 5.9% GDP growth print compared to just 0.7% last quarter can only be appropriately characterized as “the biggest lie in history”; particularly in light of the fact the “Land of the Setting Sun” is still using a negative price deflator, despite the highest CPI readings in five years. Oh wait, scratch that as the Japanese government mocked our cumulative intelligence this morning, when – for the first time in five years – it reported a positive GDP deflator of get this +0.01%!
Frankly, it’s difficult to determine which data is more deserving of this dubious title as based on last month’s NFP payroll increase of 288,000 jobs – as eviscerated in “three numbers: +288,000, +234,000, and -806,000” – the U.S. government clearly is in the running. And this morning’s batch of unmitigated propaganda takes the cake; as yet again, real data suggests nothing short of economic collapse – whilst fabricated data states otherwise. The fact that Treasury yields are free-falling only validates this thesis – as we predicted last week in a three-article series culminating with “the most damning proof yet of QE failure.
This morning, the Cartel was determined to attack paper Precious Metals with all their might – given how yesterday, they surged (albeit, in typically capped manner) when the Fed’s 10-year yield “line in the sand” of 2.60% was decisively breached. Under no circumstances can evidence of Fed failure be seen as the catalyst for gold and silver rallies; and thus, the usual litany of “diffusion indices” and “seasonally adjusted” indicators – like weekly jobless claims, the Philly Fed Index, and the Empire State Manufacturing Index – were trotted out this morning with “strong” absolute numbers; albeit, extremely weak on an historical basis, with the tell-tale category of employment expectations declining. Gold and silver were of course, “monkey hammered” lower at the COMEX open as they have every day this week; whilst Dow futures, initially, didn’t budge and Treasury yields declined.
However, yields then proceeded to free-fall lower; and as I write, the benchmark 10-year yield has resoundingly breached multi-month support at the key round number of 2.5% just one day after breaching 2.6%; in our view, en route to the “1’s,” as the entire world bets on “un-tapering” – and eventually, “QE to Infinity.” Stocks are declining sharply as well, led by the very small cap “bubbles” we have recently discussed. And why shouldn’t they – given the massive, unprecedented leverage they have been purchased on care of the Bernanke and Yellen “puts?”
At some time in the not-so-distant future, betting on record low rates whilst Central bank printing presses are running full tilt will be disastrous. But for now, this is what “markets” do; thus, validating everything we have predicted at the Miles Franklin Blog. Even MSM cheerleaders are starting to realize as Bloomberg did yesterday when it averred “the market now sees diminished macroeconomic expectations and expects the Fed to end the upcoming tightening cycle (more quickly than previously anticipated.”
Anyhow, highlighting the comedy that passed for today’s “bullish” jobless claims and sundry diffusion indices as usual, when real data was published it told a completely different story. In other words, the same old tired game of subjective data propagandized to purport “recovery,” whilst objective data screams recession.
To wit, the privately compiled NAHB Housing Market Index imploded to 45 from 47 last month and 56 in January (you know, when “the weather” was bad) versus the expected level of 49. Worse yet, industrial production plunged 0.6% versus an expected flat reading; manufacturing activity fell 0.4% versus an expected 0.4% gain and the March Treasury International Capital, or TIC report indicated essentially ZERO foreign demand for paper U.S. securities. In fact, whilst Russia dumped a $20 billion of Treasuries or 16% of its remaining holdings, that “mystery buyer” in Belgium bought another $40 billion bringing its holdings to a whopping $381 billion or 80% of its GDP. Putting this farce into perspective, China’s and Japan’s U.S. Treasury holdings amount to 12% and 18% of their GDP, respectively.
As I write, the Dow is down 185 points or just above the “PPT ultimate limit down” level of -1.0%” – whilst the 10 year yield has plummeted to the astonishing level of 2.48%; and gold and silver – what a shock – are sitting right at the Cartel’s current “lines in the sand” at $1,300/oz. and $19.50/oz., respectively.
Frankly, it’s hard to believe TPTB’s ill-fated scheme of unprecedented money printing, market manipulation and propaganda has made it this long without catastrophic implosion. As sure as night follows day, it’s coming and when it does, if you haven’t already protected yourself with REAL MONEY, it will be too late!
