Celebrating Policy Errors And Corruption With Bogus Milestones in The Recovery™

Or Why Is Unemployment Falling Along With the Labour Participation Rate?

The pat answer from learned economists is that this is 'the new normal,' and 'structural.'    It is all part of an aging population gracefully moving into their comfortable retirement.   They say this even though people are working in great numbers into older age because they have little savings and pension security, and the real median income continues to stagnate.   And while corporations and the one percent reap rich profits and increases in income from the Fed's trickle down monetary stimulus.

So many odds things occurring.  We have a bear market in the price of gold, even while the physical supply of it is disappearing, and major benchmarks have been found to have been manipulated by the financial system.  Curiouser and curiouser.

The answer is that the government and their corporate partners are painting pictures of a recovery, and placing them along the highways and byways, in order to convince us that things are getting better.  In this Wonderland where nothing is real, perception is everything, and everything is its image.

This is why I first called this 'The Potemkin Economy' some time ago.

Ralph Dillon from Global Financial Data passed this along, and I thought this was interesting. The commentary is his.

If unemployment benefits were extended indefinitely would this chart look any different? Is the decline in labor participation due to the extension of federal unemployment benefits? Would we continue to see the duration of unemployment keep trending higher if it was?

This chart is amazing in many regards. First, the duration of consecutive weeks of unemployment has never been over the overall labor participation rate in 45 years of recorded statistics. Second, the parabolic increase in the duration of those unemployed is staggering starting in 2009. Third, we have never seen the two series in lock step as they currently are.

And finally, is the decline in how long someone is unemployed correlated to the drop in those who are actually employed? Shouldn’t the participation rate go up if the duration of those unemployed is improving? What will this chart look like in say 10 years?

I continue to be fascinated with employment in this country. It seems the importance of decade’s worth important economic statistics have been turned upside down. Further, they are being looked upon differently according to what message you are trying to send.

For example, the Federal Government has had a target of 6.5% unemployment. Four years ago this was considered a milestone of achievement for a broken economy. Yet yesterday, in testimony before congress, Fed Chair Janet Yellen, indicated that the unemployment target having been reached, is no longer a goal. It had been a goal since the unemployment rate reached its highs after the 2008 financial crisis.  If we reached that goal, then things must be going well, right?

Not if you look at this chart it doesn’t. The 45 year average of the duration of unemployment is 101 weeks. Today we are at 200 weeks! Since the crisis started, we have doubled the duration of time that those are unemployed stay unemployed. Not very good. But what about the improving economy we keep hearing about? More jobs right?

Wrong. The overall civilian labor force participation rate is at the lowest level in over 3 decades yet we are at 6.5% unemployment. What then are we going to set as our next goal?

If we keep setting goals that are meaningless then why are we setting them at all? If the economy is so good, then why are we continuing the Quantitative Easing program? Sure it’s been scaled back a bit, my inclination is that the easing is skewing the traditional statistics that we have been using to measure the economy for decades.

If something is truly broken, like the labor market, why not set out and fix it instead of making it worse and celebrating its bogus milestones that are truly failures. Who does Quantitative Easing help anyway. They say Main Street, but many feel Wall Street.

They say that facts and numbers do not lie. Only politicians do.

(and those who work in the service of power and the status quo, such as mainstream media pundits, academic and professional economists, and other Very Serious People of titles and great consequence. They like to use terms like 'the new normal' to prepare people for being economically abused and repressed until exhaustion and collapse. - Jesse.)

"Robbery, rape, and slaughter they falsely call empire; and where they create a desert, they call it peace."

Tacitus, Calgacus' Speech from Agricola

Gold Daily and Silver Weekly Charts - Bucket Shops - Hidden Pricing In Electronic Bond Sales

"Because so few of the world’s real producers, consumers and investors deal on the COMEX, the exchange has developed into a 'bucket shop' or a private betting parlor exclusively comprised of speculators. Again, this is an intentional development as much more trading volume is generated by speculative High Frequency Trading (HFT) than by legitimate hedgers (like miners) transferring risk to speculators.

Legitimate hedgers don’t day trade. It is no exaggeration to say that the COMEX has been captured by speculators and abandoned by legitimate hedgers."

Ted Butler, Butler Research LLC, March 19, 2014

You may wish to keep what Ted Butler has said in mind.

I find it difficult to understand how so many otherwise intelligent people are willing to blind themselves to what is going on in so many  markets and key benchmarks, often with a sense of false sophistication and snide superiority. 'Oh yes of course there is price rigging, insider trading, and corruption in the markets. But that is only for the little people, who really deserve to be cheated. It is not for people like us. We know better.'

Bloomberg
SEC Said Examining Hidden Electronic Bond Trading Prices
By Lisa Abramowicz Mar 20, 2014

"The U.S. Securities and Exchange Commission is examining how electronic bond-trading platforms allow dealers to give clients different prices on the same securities in the $40 trillion market, potentially hurting smaller investors.

SEC regulators want to understand why brokers sometimes block their rivals and clients from seeing some of their prices for municipal, corporate and other bonds, according to a person with direct knowledge of the examination. They’re concerned that being able to turn quotes on and off may allow market manipulation, and that smaller buyers may not get the best prices, the person said..."

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Better Than Expected - A Faithful Companion

“Some animals are more equal than others.”

George Orwell

The economic news this morning was 'better than expected.'

A frog in a pot full of water on the stove can think that being in the pot is better than being in the fire underneath.

Tomorrow is a triple witch stock option expiration.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - Another Triumphant FOMC Day

There was intraday commentary on the Fed Statement here, and some comments on the nature of the Fed's policy error in the US equity charts and review here.

There is an option expiration for stocks on Friday, and I suspect that call option owners of the mining companies and various related metals products got quite a ride today.

Have a pleasant evening.

Postscript:   Here is an interesting chart from Median Macro.   I like its presentation format which is easy to read and compactly informative.   However, notice that they are showing the change in the price of gold for the entire week.  I would have preferred to have seen the change in the price of gold from the day before the FOMC meeting to the day after the announcement. 

But I included this because it was interesting that there was no change in the months in which there were no meetings.  They should consider going back a year or two at least to obtain more observations, say at least to the beginning of QE since the hypothesis is that the Fed is engaging in perception management.

Source: Meridian Macro (h/t ZH)

SP 500 and NDX Futures Daily Charts - FOMC Day - Fed's Policy Error In One Chart

The Fed continued its taper on the bond purchasing at a pace designed to end the program sometime this year.

But it is important to remember that they continue to roll everything over, so their Balance Sheet will continue to expand.

I fully expect them to do another quantitative easing program after this one.

The first chart below shows the nature of their policy error in one slide. A special thanks to those free thinkers at GMU for the chart.

Their economic projections for 2015 recovery should have little credibility, considering they could not see a second massive bubble which they created, and then one of the worst financial crashes since the Great Depression.   These were not acts of God, but events which they themselves helped to create and abetted,  as both policy maker and regulator. 

The Emperor is not naked. The Emperor is barking mad. 

Have a pleasant evening.

Federal Reserve Statement: Chili Today, Hot Tamale

The Fed continues to 'taper' their purchase of Treasury and Agency debt, but are rolling over all existing securities, which means no reduction in their Balance Sheet, just a slower rate of increase attributable to debt instrument purchases through this program.

The Fed has softened its economic forecast for 2014 'because of the weather,' and reaffirms its stronger view that 2015 will see something more like a recovery that will permit a relaxation of their accommodative policy. 

Don't worry we know what we are doing and this is going to work if you give it (more) time, and then it will all be great.  Just give us more time, and more time, and more time, and eventually it will all work out.   Until then, its chili today, but hot tamale. 

I think that they either do not know what they are doing, or feel too constrained by exogenous factors  to actually do what must be done to fix this system.  They are, after all, a private entity owned by the Banks, the same Banks that crashed the system in the first place.  The Fed is very much in the credibility trap.

I suspect that the recovery will be in the ever retreating future, if reforms to the financial system are not made, and if government fiscal and political policy does not begin to encourage growth in the median wage. 

This is what it will take to support growth in aggregate demand without distorting consumer balance sheets with unpayable and unsustainable debt once again.  But for now they will keep giving money away to the Banks, and hope some of it makes its way to the real economy.

Chair Yellen will be addressing issues and questions in her press conference. 

Bloomberg has been showing a fairly nice graphic of the Fed's latest 2014 and 2015 economic projections.  I will look for a copy of it and include it later when I find it.

I am not hopeful for this change at this time.  Or any time in the future until something fundamental changes that will allow for meaningful reform.

Board of Governors Federal Reserve System
Policy Statement
Release Date: March 19, 2014
For immediate release

Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee's commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity

Gold Bull Market Corrections Then and Now

The rumours of the death of the precious metals bull market might just be a bit premature.

I think we are in the midst of a generational change in the international currency system. 

The currency platform will continue to shift, and attempt to restabilize.  Change is in the wind, and has been for some time, and flexibility with the ability to learn and adjust will continue to pay a premium.

And it is hardly over and done yet.  I think we are only at the end of Act I, the realization that the dollar reserve currency system put in place unilaterally by Richard Nixon is unsustainable.  But no one knows yet exactly what comes next.

As for the chart of the big correction in the 70's, it may not repeat.  But a rhyme would be fine. 

This chart is from goldchartsrus.com.

Gold Daily and Silver Weekly Charts - FOMC Meeting Day One

Today was the first day of the FOMC meeting. Tomorrow they will announce their latest reading of the entrails of the real economy at 2 PM EDT.

It was 'risk on' all the way, as money moved into equities. And Treasuries as the yield fell. Surprisingly those two moved in concert, but on thin volumes. Pretty as a picture. Endless prosperity and no worries.

Gold has now come back down to test the neckline.  Let's see how we end the week.

There will be a Comex option expiration next Tuesday for the more important April contract.  We are getting closer to a real delivery month, at least in terms of the Comex which delivers relatively little.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Rallying Up to Resistance on Thin Volumes

Today was the first day of the FOMC meeting.

Stocks rallied higher on rather thin volumes. I wonder if they will make it to the top of the trending channel.

VIX is back to fairly complacent levels despite the international turmoil. All is well in the Pax Americana.

Another Banker took his own life.  He had some connections to the London Whale trade. 

Have a pleasant evening.

Grant Williams: Crimea River

"'Public clashes between Ukrainians and Russians in the main square in Sevastopol. Ukrainians protesting at Russian interference; Crimean Russians demanding the return of Sevastopol to Russia, and that parliament recognise Russian as the state language. Ukrainian deputies barred from the government building; a Russian "information centre" opening in Sevastopol. Calls from the Ukrainian ministry of defence for an end to the agreement dividing the Black Sea fleet between the Russian and Ukrainian navies. The move is labelled a political provocation by Russian deputies.

The presidium of the Crimean parliament announces a referendum on Crimean independence, and the Russian deputy says that Russia is ready to supervise it. A leader of the Russian Society of Crimea threatens armed mutiny and the establishment of a Russian administration in Sevastopol. A Russian navy chief accuses Ukraine of converting some of his Black Sea fleet, and conducting armed assault on his personnel. He threatens to place the fleet on alert. The conflict escalates into terrorism, arson attacks
and murder.'

Sound familiar? All this happened in 1993, and it has been happening, in some form or other, since at least the 14th century.

Instead of blustering into their microphones in a frenzy of self-righteous indignation, the leaders of the US and EU would do well to spend a few minutes swotting up on the history of this volatile region. They would learn that Crimea has a long history of conflict between its Ukrainian, Russian and Tartar communities, and has been ping-ponging back and forth between Ottoman, Russian and Ukrainian jurisdiction for years..."

So begins an article in the UK Guardian this week, written by a British novelist of Ukrainian origin, Marina Lewycka Ukraine and the west: hot air and hypocrisy; and amidst all the furore surrounding the events in Ukraine these past couple of weeks, it's important to gain a little perspective in order to understand the history surrounding the country's fractious relationship with Russia and its recent dalliance with European suitors.

The key to the stand-off over Ukraine is the Crimean Peninsula — no stranger to conflict over the years and home to the infamous "Valley of Death" into which rode the 600 whom Tennyson commemorated in his epic poem recounting the ill-fated Charge of the Light Brigade. The order that sent those gallant young men to their inevitable doom is symptomatic of the kinds of catastrophic misjudgements that get made when emotions are running high...

Read the entire piece, with its wonderful title, by Grant Williams in downloadable pdf format here.

I am certainly no expert on the politics of the Ukraine, past or present. I remember the Orange Revolution, and that there is significant corruption in those regions of the world is nothing new. We have admirable amounts of it here as well, as we tend to forget. And it is mildly galling that there are never any consequences for financial miscreants and neo-cons, who lie us into financial crises, and wars under the false pretexts of patriotic fervor. 

The humanitarian cloak of freedom is a popular colour when worn for adventures abroad, but it seems often to be sorely lacking at home these days.  And the hardest voices for humanitarian wars are often the hardest voices on their own, especially the weak, the infirm, the elderly.  And those hard voices, those tough guys, are rarely in the fight themselves.

But one thing I am sure of is that Orwell, and General Smedley Butler for that matter, had it right.

"War against a foreign country only happens when the moneyed classes think they are going to profit from it."

George Orwell

With a few exceptions of a more defensive nature perhaps,  I think that this is about right. And I would hope we are all aware that the 'defense' excuse is often the contrived refuge of some very worldly men and their private interests involving money and power.

Does that sound skeptical, even cynical? Well then, perhaps I am becoming so with experience.

Have a pleasant evening.

Related:

Ukraine: Who Is Playing For What - GolemXIV

Remember These Words

As you examine your own self, and your conscience, remember these words.

As you face your trials now and in the future, remember these words.

When you hear conflicting versions of the truth, remember the hallmark of these words.

When your faith is strained,  and hope seems pointless, and your love begins to grow cold, and fear eats at the marrow of your bones,  remember these words.

Not many may remain standing, but those that do, will remain standing only with love.  If you do not hold closely to love, above all else, then you may have already fallen.  And if there is time, you might be able to stand again, and gather yourself together, and continue to go forward.  Even Peter himself fell three times, but in his sorrow and humility rose again.

If I speak in the tongues of men or of angels, but do not have love, I am only a resounding gong or a clanging cymbal. If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but do not have love, I am nothing. If I give all I possess to the poor and give over my body to hardship that I may boast, but do not have love, I gain nothing.

Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonour others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres.

Love never fails. But where there are prophecies, they will cease; where there are tongues, they will be stilled; where there is knowledge, it will pass away.

For we know incompletely and we prophesy incompletely, but when our fullness with God comes, what is incomplete and imperfect disappears. When I was a child, I talked like a child, I thought like a child, I reasoned like a child. When I became a man, I put the ways of childhood behind me.

For now we see life as only a reflection, darkly, as if in a mirror; then we shall see true life face to face. Now I know incompletely; then I shall know fully, even as I will be fully known.

But for now these three virtues abide: faith, hope and love. And the greatest of these is love.

1 Corinthians 13:1-27

Gold Daily and Silver Weekly Charts - Must Be an FOMC Week

“The common people pray for rain, healthy children and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace.”

George R.R. Martin, A Game of Thrones

The jitters went by the wayside as the markets took a big snort of economic news this morning and rallied higher, in what was clearly a 'risk on' trade.

The US and its client states condemned the Russia meddling in the Ukraine, and dismissed the vote in Crimea. You may recall that the US and its allies helped to replace the government in the Ukraine 'ex-vote.' Our meddling is the only one that will be tolerated.

The resurgence of the neo-cons, unashamed after their decade of lies and carnage is remarkable. But a general lack of conscience and moral restraint is the hallmark of the culture it seems, from politicians to pundits.

This is an FOMC week, AND a triple witch stock expiration on Friday. So we are seeing some of the usual technical trading that one may have come to expect from this sort of thing.

This too will pass.

Happy St. Patrick's Day.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Risk On

Stocks took off like scalded cats running higher this morning as the economic news in the US came in 'better than expected.'

As a reminder this is an FOMC week, and a stock option expiry.

Our hypocrisy knows no bounds.

Gold Daily and Silver Weekly Charts - Gold Continues Higher as Miners Outperform

Gold continued punching higher after its breakout, but the less talked about story might be the performance of the mining stocks this year, which has been fairly impressive. I have intraday commentary and some relative performance charts on that here.

With silver lagging a bit it looks like a 'safe haven' trade so far, and some of it has to be a relief rally from the incredibly pounding that the metals have taken since the Germans asked for the return of their gold bullion in late 2012.  That apparently tipped over someone's punchbowl, and they unleashed the dogs of currency war. 

Speaking of the dogs of the financiers, I see where the FDIC is suing many of the large banks for their manipulation of LIBOR, based on the premise that in distorting the markets they caused other banks to suffer losses.

So what next. We have an FOMC two day meeting next week, with their announcement on Wednesday. I would expect to see the usual taper talk and mild jawboning, with a 'steady as she goes' stance.

There will be a triple witch stock option expiration on Friday. The next Comex metals option expiration will be on the following week, on the 26th of March. These are for the April contracts.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Quiet Trade, Crimea Vote

Very light volumes today as the markets tended towards jitters, judging by the VIX chart which is below.

FOMC next week, and a triple witch stock option expiration on Friday. But the real attention may be to the referendum vote in the Crimea on Sunday, and any Russian plans to act on a vote for annexation.

Let's see if the wiseguys get a chance to buy the dip and run the shorts sometime next week in honor of the Fed and the triple witch in a squeeze play. Or not. The geopoliticals may have some say in this.

Have a pleasant evening.

Year To Date Performance of Several Financial Investments

It is early days yet, but I was curious to see how several assets have been performing so far this year.

Even the precious metal miners are doing well this year.  But we must consider the absolute beating they took in 2013, and the overall depressed prices at which many of them are still trading.  I think the third chart tends to put the brutality of the correction in the precious metals during 2013 in perspective.

While volatility in investments can be thrilling on the upside, it is a kind of portfolio hell to the downside.  Live by beta, die by beta. 

Unless of course you have access to asymmetric knowledge, with an advantageous positioning at the market table, and can turn in almost perfect trading records over long periods of time. 

Still, this is a nice change of pace so far.

NAV Premiums of Certain Precious Metal Trusts and Funds

As a reminder, next week there is a two day FOMC meeting, with an announcement of their decision and opinions on Wednesday afternoon.

There is also a triple witch March stock expiration on Friday.

Gold Daily and Silver Weekly Charts - Killing Fields

Imagine a case in which markets offer very profitable opportunities to wealthy and well-connected participants. Let's call them insiders. And let's assume that the government does little in the way of effective regulation, except for the occasional small fry or relative outsider who is caught breaking the rules.

Imagine that the insiders either directly or indirectly control the rule based governance of the exchanges, which are often supposed to be self-regulating in those areas in which the government is not able to exert the rule of law.

What is there to limit the ability of those insiders to set prices where they wish for their own benefit? What are the real world consequences such as being required to actually deliver something which they have sold, or pay a serious and personal criminal penalty when they are caught rigging the game and breaking the rules?  

In such a system, one has to ask themselves, what is there to keep this market from just degenerating into a control fraud, a type of killing field, where those in the real economy who dare to venture in, either willingly or without recourse, are led into a blind alley and robbed, and sometimes economically strangled for the benefit of a few?

And what are the likely longer term consequences to the real world of people who work and produce things, of such a corrupt and inefficient arrangement?  Some might suggest the decimation of certain industries and economic sectors, eventual systemic shortages, significant inequality of power and wealth, and a straining of the social fabric in widespread cynicism and discontent.

Who could even imagine people allowing such a dreadful state of affairs to exist, especially in a land of the free?

"He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

Have a pleasant evening.

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