Gold Daily and Silver Weekly Charts - Benny's Theme: Flirtin' With Disaster

"All frauds, like the wall daubed with untempered mortar, with which men think to buttress up an edifice, always tend to the decay of what they are devised to support."

Richard Whately

Well, as we have come to expect, the FOMC day was marked by an early bear raid and comic shenanigans in the precious metals markets.

We might get more of the same around the Non-Farm Payrolls Report on Friday. In itself,  the Jobs Report should be a real knee-slapper of  slack jobs growth and the ever disappearing unemployed.

The Fed dispelled any illusions about ending QE early in their statement today. The chill passing over the economy has quite a bit to do with it. But the Fed will keep doing what they are doing until something improves or breaks, because they are locked into an obsessive compulsive box by the credibility trap of their own past policy failures and conflicts of interests.

So expect another bubble and crisis.

ADP employment numbers came up short, and that impinges on expectations for the Non-Farm Payrolls report on Friday.

National ISM was aenemic, but not quite a contraction.  But it was enough to show that 'The Recovery' is no recovery.

Intraday commentary about the Fed statement here and the bubble environment caused in part by the Fed here. Please be sure to listen to Jeff Sachs entire speech and the Q&A session here, and recall that he was speaking to a conference at the Philadelphia Fed.  Every time I listen to it I am astonished that it did not get a wider exposure, and nary a mention in the mainstream media.  Sachs is no outsider, and hardly a starry eyed reformer.    The venal stupidity of those in command is frightening even to longer term stalwarts.

I think it will take another financial crisis, and even more scandals and revelations.  And I will be surprised if there are any lack of any of them, despite the war on whistleblowers and the muzzling of the media.

And speaking of modern money, it appears that the whizkids are short about $11.2 Trillion in money good collateral.   I can only think of one form of money that bears no counterparty risk.

Benny's Theme

SP 500 and NDX Futures Charts - Fed Flops, Payrolls Cometh

Another fun filled day on Wall Street, aka Pig Alley.

Matt Taibbi notes that TBTF Takes Another Body Blow.

Is the Fed Setting Up the Mother of All Shorts?

The timing may be tricky, but such severe distortions in valuation as shown in the chart below can often set up special opportunities for investment profits when the eventual reversion to the mean, or norm, occurs.

I think it may be more difficult to trade on these sorts of sweeping macro changes now because of the pervasive corruption and insider operations in the markets which prey on the mispricing of risk and the calculated asymmetry of information.  I am comparing this to my own investment decisions on behalf of my family in the early 1980s, that pre-HFT period when the customers' man still thanked you for your order, when it became obvious to most informed observers that Volcker's interest rate policy had peaked at twenty percent, and the long decline in rates had begun. I remember a colleague coming in to my laboratory and writing the date and rate on my chalkboard, and he was right. For the astute longer term investor, those were the days of zero coupons, high grade and high paying annuities, longer term Treasuries, and high quality dividend DRIPs.

Look at the difficulty one has had investing in the precious metals markets from 2000 until now. I have viewed it as a similar broad macro trend, and consequent bull market, that is so apparent that it has bordered on an IQ test rather than an investment decision.  It does however cross the path of the central banks and their policy enhancement apparatus, so it is not quite so benignly tolerated as dealing in fraudulent paper, the times being what they are. The Fed did not say so much back then, but they did not prevaricate and intervene so broadly and frequently either. If the Fed ultimately does cease to be as an institution, its decline and failure will be marked by the Chairmanship of Alan Greenspan.

But for long term investors I think riding this macro trend will still be possible when the tide turns and change comes. And I think I will wait for it, because to be early is to be wrong. And these days trading early is measured in microseconds. And so it is best to wait for positions to be right, and then sit tight.

Chart courtesy of Ralph Dillon at Global Financial Data. The views expressed above about it are my own.

Fed Open Market Committee Statement for May 2013 - Audacious Oligarchy

"The planter, the farmer, the mechanic, and the laborer all know that their success depends upon their own industry and economy, and that they must not expect to become suddenly rich by the fruits of their toil. Yet these classes of society form the great body of the people of the United States; they are the bone and sinew of the country--men who love liberty and desire nothing but equal rights and equal laws, and who, moreover, hold the great mass of our national wealth, although it is distributed in moderate amounts among the millions of freemen who possess it.

But with overwhelming numbers and wealth on their side they are in constant danger of losing their fair influence in the Government, and with difficulty maintain their just rights against the incessant efforts daily made to encroach upon them. The mischief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges which they have succeeded in obtaining in the different States, and which are employed altogether for their benefit..."

Andrew Jackson, Farewell Address

The Fed, as suggested, had nothing new to say, except perhaps to scale back to near zero any speculation that the Fed will be returning to a normal monetary environment anytime within the next year or so.

I am anticipating an increase in special Fed programs and even more extraordinary action before a cessation. 

And there will continue to be the use of secrecy, deception, and 'perception management' which will make any and all reform but a thin veneer.

The idea that the Fed would terminate QE sometime later this year is laughable, almost as funny as the notion that the Fed is making objective scientific judgements about specific policy actions based on solid economic data.  The Fed, by its own self-rationalizing admissions, cannot find the bubbles emanating from its collective bottom, even with both hands.

In this statement the Fed seems to point a finger at the political class, and rightfully so.  But keep in mind that the Fed are among the most powerful of the regulators, and are heavily involved in promoting policy and advocacy in favor of the banking system as it is.  The Fed is at the heart of the problem, and every bubble and financial crisis we have seen for the past thirty years.  

Their willful hypocrisy makes one cringe.

The fiscal actions of the Congress and the Whitehouse are a paleo-economic error in policy prompted by their almost slavish devotion to the monied interests, and held captive in the credibility trap.

It is little comfort that Europe is in a worse condition because of their inherently unsustainable and unwieldy structures. 

Federal Reserve Policy Statement for 1 May 2013

Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.

Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. 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 growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 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. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee 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.

The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. 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.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.