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Thursday, June 10, 2010

Manufactured Optimism

The big boys are pulling out all the stops.  You can almost smell the panic.

The, "I just don't get it" brigade - generally led by the Federal Reserve Bank and US Treasury - are seeing that people aren't buying their line of garbage.  In this case, the Fed subtly made comments that undermine certain markets.... at least in the short-term.  His comments caused gold to drop early this morning.

Gold will recover.  Our economy is questionable, at best.

Take Uncle Ben Bernanke's comments in the Wall Street Journal from yesterday -
Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk.

In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

“I don’t fully understand movements in the gold price,” Mr. Bernanke admitted. But he suggested it might be another example of investors fleeing risky assets and flocking to assets that are perceived as less risky, not only Treasury bonds, but also ones like gold.
Uncle Ben, as a public service, I'm going to clear up this mystery for you.

First, the reason Treasury yields are staying low is because PEOPLE AND COUNTRIES AREN'T BUYING THEM.  It's that whole 'supply and demand' thing, Ben.  No one trusts them any more.  The Full Faith and Credit scam has been recognized for what it is - a scam.

Your actions are directly responsible for that loss of faith in Treasury's. Quantitative Easing (printing money out of thin air), Qualitative Easing (buying high-risk assets, generally with those 'thin air' dollars) and then you hiding behind some arcane laws so we can't see how you're manipulating other markets has resulted in that mistrust.

We don't trust you, Ben.

From another WSJ article published yesterday -
Fed Chairman Ben Bernanke is trying to be reassuring about the outlook for the economy in testimony to the House Budget Committee this morning. But his wariness is palpable given what has happened in financial markets in recent weeks and uncertainty about Europe.

Asked whether a double-dip recession is likely, Mr. Bernanke repeated a reassurance he offered Monday that he doesn’t think so. The Fed is forecasting moderate growth in the 3.5% range, with modest declines in unemployment, and it’s sticking with that forecast. An important transition could be underway for the economy — away from government support and toward private demand, he noted. That’s a formula for continuing expansion.
He wants us to believe we're moving AWAY from government support?!  Did that testimony come with a pre-recorded laugh track?  Ol' Uncle Ben had better get a permit from the EPA for all of the toxic dung he's shoveling.

He's telling us to trust him and his economists.  Aren't these the same folks that were caught flat-footed about the current economic morass?

Most people finally recognize that the Fed and any other government entity will manipulate the numbers and tweak the truth any way they see fit.  Whatever is needed to support their programs.  The ends justify the means.

This use of manufactured optimism is not monopolized by the US.  Europe, in the midst of a "standing eight count", has just come out with reports that they're ready to kick butt and take names -
European Central Bank President Jean-Claude Trichet said Thursday that economic recovery took hold in the euro zone in the spring, but that renewed tensions in some financial market segments pose risks.

The ECB Thursday raised its forecast for growth in the euro area for this year, but lowered its forecast for 2011.
They are literally rioting in the streets across Europe, and this guy has the stones to say things are looking up?  2011 might suck, but green shoots are poppin' up all over the place?!

They are good students, though.  Uncle Ben appears to have his influence over there as well -
Mr. Trichet defended the ECB's decision last month to begin buying billions of euros in euro-zone government bonds to help prop up those markets, particularly in fiscally weakened countries along the region's perimeter.

Many economists said the plan risked fueling inflation if government debt were allowed to be monetarized without corresponding funds being absorbed by the ECB elsewhere.
Hmmm.  Sounds like it's just as easy to print Monopoly Euros as it is to print Monopoly Dollars.

The manufactured optimism comes out, and the markets surge.  As I write this, the Dow is up around 200 points.  Is this being caused by the Plunge Protection Team?  Who knows?  I just have difficulty believing people are willing to risk their own money to buy into this mess.

One thing I do know is that they're making sure the market doesn't simply wake up one day and run, screaming for the hills -
Trading exchanges as early as next week will implement rules designed to tame the volatility of individual stocks by temporarily halting trading during dramatic price changes, even as market participants are bracing for stiffer rules.

Members of the Securities and Exchange Commission have signed off on the stock market "circuit breaker," according to a person with knowledge of the situation.

The rule will be in effect on a pilot basis for six months.

The cross-market trading pause was proposed last month in response to the May 6 "flash crash" that saw the Dow Jones Industrial Average plummet almost 1,000 points before partially recovering.
Yeah, we wouldn't want free markets to operate, would we?

Insurance industry nationalized?  Check.
Banking industry nationalized?  Check.
Automobile industry nationalized?  Check.
Health care industry nationalized?  Check.
News/journalism industry nationalized?  In process.
Equities industry nationalized?  In process.
Oil industry nationalized?  Under review.
Private retirement savings industry nationalized?  Under review.

Accept The Challenge

Read and digest.  Obviously, everyone's life and financial circumstances is different.  What is right for me might be disasterous for you.

That being said, it seems crystal clear that inflation will absolutely spike.  The Fed simply cannot keep printing up this money without inflation going through the roof.  Just remember that it will likely be proceeded by deflation.  If the high unemployment does not subside, demand for most goods will drop, resulting in a drop in prices.  Manufacturers, farmers and business will then restructure their operations, resulting in lower volumes of goods being produced.  The cheapened dollar coupled with lower availability of goods will mean ugly prices.

Personally, I think we're in the midst of this restructuring phase right now.

Look at all of your options:  Precious metals, elimination of debt, purchase of products important to the success of your business and your family, multiple sources of income, education to enable you to thrive during tough times.

It's "back to basics" time, folks...

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Ryan said...

Been thinking about my options a lot lately. The plus side is that our income is very secure and comfortably meets our needs. The down side is that unlike say a private small business I can't immediately adjust prices to reflect high inflation.

We have some precious metals and are slowly buying more. Elimination of debt is our #1 priority right now in the form of making 300% payments on my student loan. Instead of paying it off in 3+ years it will be a bit less than 1.

In terms of education I don't see either of us going back to school for at least a couple years. We are slowly accumulating stuff.

The only thing I would really like to do that we are at an impasse on is multiple streams of income.

Chief Instructor said...

TOR, with regards to education, I was thinking more along the lines of practical skills. Learning how to home can. How to start a fire 5 different ways, or purify water, etc.

Still, if you're an office worker, it might not be a bad thing to do to develop practical, marketable skills that are in demand. Health care, auto repair, computer repair, etc.

Ryan said...

As for practical skills. I have a lot on the survival side, fire, living out of a backpack, etc.

As for a viable alternative job/ income stream I have been thinking hard on that one. Mostly my issue is time.

Chief Instructor said...

Yeah, there are a number of practical skills I want to learn. Welding is one. I'm learning how to grade coins right now. Friggin' fascinating. A very interesting mix of art and science.