An Attempt to Inflate Financial Asset Prices and Maintain Negative Real Interest Rates

As you may recall I said early this year that the stock market had the flavor of a 'market operation' on the tape, a conscious effort to inflate asset prices.

If you look at some of the key market charts below, the price action has pretty much been a thrown rope, almost never violating the 15 Day Moving Average.

It has been a while since I have seen a Williams%R pegged to the topside like this with barely a flutter, especially considering all the hijinks going on in Europe.

Let's see. Negative real interest rates, incessant stock market climb. Must be an 'inspiring confidence' sort of thing. Looks almost like the upside of a pyramid scheme. The most artful one I had ever seen started around early in 2004 and did not really end until the crash of 2008.

As the touts and cheerleaders were saying on bubblevision today, better buy them now while they're cheap. Yowza, yowzer, getcher hot stocks and nekkid ladies...

If you want to know why the Fed and Treasury keep the TBTF and their financial harpies at the ratings agencies around, this may be the reason: to implement their global financial policy decisions. How long they can keep it up is another matter. But they are not likely to run out of money, and much of the buying and selling in these equity markets is artificial, the quick action of computers shaving off nickels in a well-tempered instrument.

Maybe that's why they had to smack gold and silver so hard into the end of the year. Otherwise they might have taken off with the stock pumping exercise, broken through upside resistance at 2000 and 40, and threatened to get out of hand, shake up the confidence of the other players, and all that.

But if you look at the SP 500 deflated by oil, either WTI or Brent, its been in a serious nose dive.

No matter how good they want to make this look, its still a paint job, and a fairly thin one at that. But it will probably take some incident, or a key economic report gone bad, to break this nominal uptrend, so wait for it.

Gold Daily and Silver Weekly Charts - Tales of Brave Ulysses

"...we are overdone with banking institutions which have banished the precious metals and substituted a more fluctuating and unsafe medium, that these have withdrawn capital from useful improvements and employments to nourish idleness, that the wars of the world have swollen our commerce beyond the wholesome limits of exchanging our own productions for our own wants, and that, for the emolument of a small proportion of our society who prefer these demoralizing pursuits to labors useful to the whole, the peace of the whole is endangered and all our present difficulties produced..."

Thomas Jefferson

Today was just another lingering moment on the monetary odyssey of Ben Bernanke.

Gold and silver held up well today for silver's option expiration.

The wheel of fate grinds slowly, but exceedingly fine.

Bernanke Agonistes

...No! I am not Prince Hamlet, nor was meant to be;
Am an attendant lord, one that will do
To swell a progress, start a scene or two,
Advise the prince; no doubt, an easy tool,
Deferential, glad to be of use,
Politic, cautious, and meticulous;
Full of high sentence, but a bit obtuse;
At times, indeed, almost ridiculous—
Almost, at times, the Fool.

I grow old … I grow old …
I shall wear the bottoms of my trousers rolled.

Shall I part my hair behind? Do I dare to eat a peach?
I shall wear white flannel trousers, and walk upon the beach.
I have heard the mermaids singing, each to each.
I do not think that they will sing to me.

I have seen them riding seaward on the waves,
Combing the white hair of the waves blown back,
When the wind blows the water, white and black.

We have lingered in the chambers of the sea,
By sea-girls wreathed with seaweed red and brown,
Till human voices wake us, and we drown.

T. S. Eliot, The Lovesong of J. Alfred Prufrock

SP 500 and NDX Futures Daily Charts

"From a time long ago when we sold our vote to no man, we have abdicated our responsibilities. The People who, once upon a time, handed out military command, high civil office, legions — everything, now sits in craven silence, and anxiously hopes for just two things: bread and circuses."

Juvenal, Satire X

Perhaps that would better be translated for the modern mind, smartphones and reality shows.

The level of conversation amongst the touts and the analysts on bubblevision is starting to sound like the nervous reassurances one might have heard whispered in the hallways of the Domus Flavia or in a later age, the Führerbunker.

US Treasuries - Negative Returns Almost As Far As the Eye Can See

These charts compare the Nominal and Real Treasury Yield Curves provided by the Treasury Department.

The 'real' return is the return on the debt less expected inflation. A note on how the Treasury calculates this is below. Since they use TIPS the real yield are only done for notes of 5 years or more duration.

The comparison is between February 22 data from this year and last year.

As one can see, the Fed's "Operation Twist" has had a profound effect on the real returns achieved by holders of US sovereign debt.

The real yields turn positive about the 15 year mark. The real return these days on a 30 Year Bond is about .76%. And that is probably using rather optimistic assumptions about inflation risk.

What this implies is that savers are by and large paying the US government to borrow from them.

Is this an effective economic stimulus for the real economy, or a sophisticated form of seignorage being performed by the Fed on behalf of its member Banks?

Interesting experiment. I hope Benny's model has the right risk parameters plugged in. If not, as Fed policy errors go, this one could be memorable.

No wonder certain alternative stores of wealth are rallying as a haven from this soft confiscation.

"Treasury Real Yield Curve Rates. These rates are commonly referred to as "Real Constant Maturity Treasury" rates, or R-CMTs. Real yields on Treasury Inflation Protected Securities (TIPS) at "constant maturity" are interpolated by the U.S. Treasury from Treasury's daily real yield curve. These real market yields are calculated from composites of secondary market quotations obtained by the Federal Reserve Bank of New York. The real yield values are read from the real yield curve at fixed maturities, currently 5, 7, 10, 20, and 30 years. This method provides a real yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity."