Politicians running for the US Presidency, and their surrogates, are fond
of saying "that this election is the most important of our lifetime." They
invoke this cliché so reflexively and so often that it no longer has
any meaning. The reason they say this election is so important is because they
want listeners to believe, for whatever reason, that it pits two deeply contrasting
visions for America against one another, with only one vision capable of winning.
At their core, US-elections are simply fought over the competing interests
of just two political parties, - the Democrats and Republicans that control
the political system, with a seemingly unbreakable monopoly. Each side wants
to tinker with regulations, spending, and taxes to influence the economy; and
pay rewards to their constituents. But the truth is, politicians of both parties
are corrupted by financial contributions to their election campaigns. It leads
to an unfair playing field, in which big Business gets even bigger, through
mergers and acquisitions, and overseas operations, and leaves US-consumers
at their mercy. Today, only half of US-households are paying taxes, and the
other half is receiving entitlements. The US-economy is at the tipping point
of collapse, similar to bankrupted states such as Greece and Spain.
The Federal Reserve has stepped into the breach, trying to bridge the divide
between a deeply polarized US-government that's paralyzed on fiscal policy
and a fragile US-economy, that's teetering on the brink of a "double-dip" recession.
In doing so, the Fed has essentially become the fourth branch of the US-government,
and its interfering with the natural workings of the financial markets. Under
the guise of the President's Working Group on the Financial Markets, (aka the "Plunge
Protection Team"), the Fed has adopted the most intrusive and interventionist
stance in the US-capital markets in its history. Over the course of the past
3-½-years, the Fed has ruled over the US-capital markets with an iron
fist, and is erasing the mantra of "Free Markets for Free Men." Sadly, the
US's long-held tradition of "laissez-faire" (leave it alone) has been dumped
into the trash bin of history.
Today, traders must operate under new rules of engagement, and the first question
of the day is, what intervention tactics does the Fed have up its sleeve, and
when is it planning to unveil its next move? "Quantitative Easing," "Operation
Twist," and the "Zero Interest Rate Policy" (ZIRP), has become the "New Normal" on
Wall Street. Furthermore, the invisible hand of the Fed is controlling the
behavior of the capital markets and at the same time, increasing the US-government's
control over the US-economy.
With the polls showing a dead even race, the Republican challenger Mitt Romney,
in unusually blunt terms, has warned the Fed to stay politically neutral ahead
of the Nov 6th election, and avoid any radical actions that could influence
its outcome. "I don't think QE-2 was terribly effective. I think a QE-3 and
other Fed stimulus is not going to help this economy," Romney told Fox News
on August 23rd. "I think that is the wrong way to go. I think it also seeds
the kind of potential for inflation down the road that would be harmful to
the value of the dollar and harmful to the stability of our nation's needs," Romney
said. The Global Money Trends newsletter holds the opinion, that the Fed would
pay heed to Romney's public warning, and seek delay the launching of QE-3 until
after Nov 6th.
At the upcoming Nov 6th election, there's a last chance opportunity for US-voters
to reverse the tide towards greater government control over the financial markets.
Instead, voters can overthrow the Fed's ruthless dictatorship and restore the
tradition of "Free Markets for Free Men and Women." The Republican ticket
of Mitt Romney & Paul Ryan ticket, has publicly declared its support for
a House bill, championed by Texas Congressman, Ron Paul that would authorize
a forensic audit of the Fed's balance sheet, and reveal its clandestine intervention
tactics. For the first time, traders could learn about what's goes on behind
closed doors at the secretive Fed. "Doing an accounting of the Federal Reserve,
finding out where the money's coming and where it's going is not a bad thing
for our country," said Reince Priebus, GOP chief, on August 26th. If true,
traders could celebrate the return of free markets.
On August 23rd, in very blunt terms, Romney indicated that the first step
towards restoring the rules of free markets would include some house cleaning
at the Fed. Romney said he would fire Fed chief Bernanke. "I would want to
select someone new and someone who shared my economic views" to the top spot
at the US-central bank. "I want someone to provide monetary stability that
leads to a strong dollar and confidence that America is not going to go down
the road that other nations have gone down, to their peril," Romney added.
His sidekick, Paul Ryan doubled down on the idea of dumping Bernanke, and his
radical QE policies, summarizing his viewpoint in just two words: "Sound Money." "We
want to pursue a sound-money strategy so that we can get back the King Dollar," Ryan
said.
Nowadays, the Fed has been stacked with hard core, addicted money printers,
whose first knee jerk reaction to any sign of a rough patch in the economy,
or a -5% pullback in the stock market, is to issue threats to the media, that
another round of nuclear QE could soon be on its way. While the Republicans
want to strip the Fed of its dual mandate, and simply have it focus on fighting
inflation, the Bernanke Fed and the Obama White House have quietly adopted
a third mandate- - to artificially inflate the value of the stock market, through
the power of the printing press, and the rigging of long-term bond yields.
Overhauling the Fed, For advocates of free markets, and less government intervention
- auditing the Fed's activities would be a huge step in the right direction.
Sacking Fed chief Ben Bernanke and installing a new Fed chief that pursues
a sound US-dollar policy, would have a profound impact on the outlook for the
US-capital markets, and by extension, would ripple across the world markets,
including commodities and precious metals. Last week, Mr Ryan spoke with CNBC's
Larry Kudlow, and said he wants to eliminate crony capitalism and corporate
welfare in the tax code. Auditing the Fed would break-up the nexus of crony
capitalism that exists between the Fed and its partners, - the Wall Street
Oligarchs.
A Romney - Ryan victory on Nov 6th is expected to trigger an audit of the
Fed's clandestine activities. It would also bring a halt to the Fed's secretive
intervention forays in the stock index futures markets that are designed to
prevent natural market corrections from morphing into grizzly Bear market slides.
It's called the "Bernanke Put," and risk takers in the stock market rely on
the Fed's timely purchases of stock index futures, that provide a safety net
for speculators, when risky bets go sour, due to unexpected negative news.
However, the Fed's worst fears would only materialize, if the Romney - Ryan
ticket prevails on Nov 6th. On August 27th - a poll published by Gallup showed
Romney holding a slim 1-point lead, but Obama's approval rating sinking to
a dangerously low 43%. Yet the online bettors at Intrade.com have a different
view, and give Obama a 56% chance of winning re-election, with Romney's odds
at winning at 44%. Still, since Romney picked Ryan as his VP on June 11th,
Obama's lead over Romney has almost shrunk in half, from +22-points to +12-points
today.
An August 27th USA Today/Gallup poll of about 1,000 adults found that 58%
expect Obama to be re-elected while just 36% think he will lose to Romney.
The new poll also showed that 86% of Obama's supporters expect him to win compared
to 9% who expect him to lose, while just 65% of Romney's supporters think he
will win and 28% think he will lose. Pollsters say voter expectations are often
skewed toward incumbents because they typically win reelection. Still, Romney
has better odds of winning in the gambling parlors, since the same polls show
that 2/3's of voters say the US-economy is heading in the wrong direction,
and that a clear majority of independents, say Romney is more capable to fix
the economy. Yet polling data should be measured against a grain of salt, since
it's often used by media outlets that seek to form public opinion rather than
to properly gauge it.
Over the past 14-months, Obama's odds at winning re-election have mostly mirrored
the direction of the Dow Jones Industrials. Since the pick of Ryan, Obama's
odds at winning have dropped -4-points to 56%, even though the Dow Industrials
have held steady above the 13,000-level. That reveals a small sea change in
bettors' psychology. However, the US-stock market was a ghost town this summer,
with trading volumes eerily shrinking to an average of just 5.5-billion shares
per day, or -48% less than a year ago. In thinly traded markets, it's easier
for the Fed to artificially prop-up the stock markets' value.
There's a very wide disconnect between the euphoria on Wall Street, and its
buoyant stock markets, and the general public's dire outlook of a stagnant
US-economy. According to pollsters, two thirds of Americans think the US-economy
is still stuck in the Great Recession, and is headed in the wrong direction.
Only 31% say it is moving in the right direction - the lowest number since
December 2011. The dire outlook is explained by a recent analysis by the US
Census Bureau and Sentier Research LLC, indicating that US-household incomes
actually declined more in the 3-year expansion that started in June 2009 than
during the longest recession since the Great Depression.
Median US-household income fell -4.8% on an inflation- adjusted basis since
the recession officially ended in June 2009. That's more than the -2.6% drop
during the 18-month "Great Recession." After the dust has settled, US-household
income is still -7.2% below the December 2007 level. "Almost every group is
worse off than it was three years ago, and some groups had very large declines
in income," the Census Bureau's income and poverty statistics program, said. "We're
in an unprecedented period of economic stagnation."
Although, Americans are increasingly pessimistic about the future, many voters
don't seem to be holding it against Democrat Obama. Instead, the embattled
president is getting some slack because he inherited a very tough situation.
In fact, Obama's strongest base supporters are among also suffering the highest
jobless rates and highest poverty rates in the country. Yet they conventional
continue to buck conventional logic. Beyond Obama's core of political support,
many independents are under the spell of the Fed's bag of magic tricks.
Over the past 14-months, the Fed has fueled the third leg of a liquidity driven
rally on Wall Street, that's catapulted the Dow Jones Industrials to a 4-year
high, above the 13,000-level. The Fed has kept the stock market buoyant, by
increasing the MZM money supply to a record high of $11.1-trillion today. The
S&P-500 blue-chips continue to defy the law of gravity, largely due to
the Fed's radical money policies, even though growth in US-company earnings
began to sputter out in the second quarter, falling -5% compared with a year
ago.
Historically, gyrations in the stock market have been a key driver influencing
US-consumer confidence. However, since February, US-consumer confidence has
been eroding, even though the Dow Industrials have stayed buoyant. Earlier
this week, a survey of consumer confidence, taken by the Conference Board showed
a drop to a reading of 60.6 in August, down sharply from 65.4 in July. The
4.8-point slide was the biggest monthly decline since October. Some 52% of
Americans say jobs are not plentiful. Most ominously, expectations for the
health of the US-economy over the next six months plunged to a reading of 70.5,
from 78.4 in July. Rising gasoline and food prices, a U-6 jobless rate that's
hovering at 15%, combined with limited wage gains are keeping consumers glum.
A further pullback in household spending and could tip the fragile US-economy
into a "double dip" recession in the months ahead. Still, the Fed's radical
monetary schemes are keeping the stock market afloat, in thinly traded conditions.
Traders are so addicted to the hallucinogenic QE-drug that they downplay the
sharp downturns in Asian and European economies that are likely to weaken S&P-500
earnings by about -1.5% compared with a year ago, - the first quarterly decline
in 3-½ years. Tellingly, psyched-out traders are scared to death of
being out of the stock market should the Fed announce the launching of QE-3.
Nowadays, stock prices jump higher when negative news on the US-economy hits
the wire, because traders reckon that bad news boosts the chances of more Fed
intervention.
QE fuels Commodity Inflation, The launching QE-3 could backfire on the Fed
and its political masters, if it ignites further big price increases in the
grains and energy sectors. Ninety percent of Americans own very little or no
shares of stocks at all, and wouldn't benefit from QE-3, but would get stuck
paying for the negative side-effects - sharply higher costs for the basic staples
of life, - energy and food prices. That's especially true for lower income
wage earners in China, India, and many Middle Eastern nations, that spend more
than half of their income on food and energy. Devastating droughts in the United
States and Russia are already set to drive global stocks of corn and wheat
to multi-year lows. Launching QE-3 could ignite a global food price crisis
on a scale last seen in 2008.
Corn prices have jumped above $8 /bushel, and soybeans above $17 /bushel,
amid the third hottest and driest summer in the seven major producing US-states
since 1895. Only 22% of the US-corn crop and 30% of the soybean crop is rated
good to excellent, - the worst since 1988. That's catapulted the iPath Dow
Jones Grains index (ticker symbol JJG.N), which includes the three top US-grains,
+50% higher since June 4th. Sharply higher grain prices also increases the
cost of raising livestock and poultry, and distilling ethanol.
At the same time, gasoline prices have surged 60-cents /gallon higher, from
above their June 22nd lows, fueled by threats of war in the Persian Gulf and
more importantly, central banks threatening to unleash new rounds of nuclear
QE. Nationally, the average US-gasoline price has risen to $3.78 per gallon,
the costliest year ever at the pump in the month of August, with little relief
through Labor Day. Still, the radical extremists at the Fed want to pour even
more fuel on the flames of inflation. On August 27th, Chicago Fed chief Charles
Evans urged the Fed to begin buying unlimited amounts of Treasury bonds, until
the US-jobless rate declines for at least six months. Evans believes that printing
vast quantities of money can create jobs, and gives little thought to the deleterious
impact of squeezing consumer's disposable income.
However, Obama's approval rating could take a serious hit, if the national
average price of gasoline approaches $4 /gallon, as a result of QE-3. Recognizing
this threat, the Obama administration has already sent signals to the marketplace,
that's it's preparing to release crude oil from the US's Strategic Petroleum
Reserve (SPR) in the month of September, in order to put a lid on the price
of gasoline between now and Election Day.
Bank of England Plays the QE Card, - In England, the "free trade" mantra
and "non-interference" slogan were first coined during the 17th century. The
French phrase "laissez faire" started to gain popularity in English-speaking
countries in the late 18th century. In Britain, in 1843, the newspaper The
Economist was founded and became an influential voice for laissez-faire capitalism.
However, since March of 2009, the Bank of England (BoE) has been trampling
on the tradition of laissez faire, and instead, is following the same blueprints
that's utilized by the Fed, and the Bank of Japan, - the original pioneer of
QE.
The British economy has been in recession for much of the past four years.
Like much of the world, it suffered a deep 18-month contraction during the
financial crisis. That ended in Q'4 of 2009. Since then, Britain's GDP has
fallen in five of the last seven quarters. B etween April and June of this
year, - the UK-economy shrank -0.5%, and follows a -0.3% contraction in the
first quarter and -0.4% in Q'4 of 2011, - meaning it's contracted for nine
straight months. Output is still -4.5% below its pre-crisis peak in the first
quarter of 2008, and -0.9% below its level in Q'3 of 2010, when the Conservative
coalition government began its fiscal austerity plan.
However, even though the UK-economy is suffering through a mild recession,
the UK's Footisie-250 Index, including smaller companies that earn their revenue
in the local economy, wasn't negatively impacted by the economic downturn.
Instead, the FTSE-250 index divorced itself from the traditional script of
Macro-Economic thinking, and climbed +10% higher since the start of Q'4 of
2011. London traders have put their faith in BoE chief Mervyn King, who publicly
says the central bank will do whatever it takes to pull the UK-economy out
of recession, signaling further purchases of Gilts, using freshly printed British
pounds.
On July 5th, the BoE launched its seventh installment of QE that will inject
a further £50-billion into the London money markets, thus adding to the £325-billion
already swirling in the marketplace. If nothing else, QE-7 is designed to artificially
boost the value of the local stock market and keep government borrowing costs
near historic lows, through a scheme known as "financial repression." "It's
fair to say that we haven't done enough," King said on August 6th, referring
to QE. "I don't accept the argument that asset purchases are having a diminishing
effect." King underscored his determination to boost the UK-economy, saying
the central bank "will continue to do all it can to bring about a recovery."
On August 26th, the BoE admitted that the biggest winners under its QE-schemes
are the top-5% of the richest Britons that own 40% of the UK's financial assets,
- while it failed to prevent a "double-dip" recession for the general public.
Pumping £375-billion into the London money markets since March 2009 has
delivered an estimated windfall profit of £870-billion to the wealthiest
10% of British households, while the poorest 10% of households gained only £3.5-billion.
Thus, the wealthiest 10% of British households gained an average of £350,000
each from QE, while the poorest gained an average of £1,400, or 240-times
less.
The Bank of England is engaging in financial repression, by keeping short-term
interest rates locked near 0.50%, and driving 10-year Gilt yields towards 1.50%,
a historic low . Locking these interest rates below the official rate of inflation
hasn't energized the UK-economy, because wealthier UK-households have lower
propensity to spend their capital gains. Still, on August 28th, Adam Posen,
a member of the BoE, called for the Trans-Atlantic central banks, - the Fed,
the European Central Bank (ECB), and BoE to up the ante even higher, by launching
another coordinated round of QE in the weeks ahead. "It could be very effective
and the Fed should act as if there was no election. If the world is in slowdown,
they should be trying to stimulate demand at home," Posen said.
On August 28th, Senator Bob Corker (R-Tenn.) blasted Fed chief Ben Bernanke,
in a Financial Times op-ed, and sending a message that the Republicans want
to the Fed to stay on the sidelines, during the upcoming election campaign. "We
must demand a Fed that serves as a utility institution in our economy, and
not an enabler of some perverse financial system addiction. It would be helpful
to have a Fed chairman who acted with a greater sense of humility about what
monetary policy can achieve. Mr. Bernanke's comfort with managing long-term
interest rates and his unwillingness to stand up and say that there are limits
to what monetary policy can accomplish is disturbing, to say the least. The
Fed's asset purchase programs have empowered runaway spending by the federal
government, hurt savers and forced investors to hunt for yield in asset classes
to which they are not suited," Corker writes. It's a stern message that the
Fed chief isn't expected to ignore, especially if the polls are tight, and
show that Romney - Ryan have a chance to win the keys to the White House.
Unfortunately, the Americans and the Brits have strayed far from their free
market principles. C entral banking has turned into central planning, from
smoothing the business cycle to micro-managing the daily gyrations in the stock
markets, to financial engineering the level of interest rates. Nowadays, the
Fed is most concerned about the next 100-point move in the Dow Industrials.
Price discovery in the stock market is no longer a function of the opinions
of millions of individual investors, but rather is dictated by the central
bank.
On November 6th, the fate of the Bernanke Fed and its radical QE-scheme is
on the chopping block, and the scope of government control over the US-financial
markets is on the ballot.