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Here are the latest Money Supply Figures from the St. Louis Fed.
I start with the narrowest measure, the Monetary Base and widen out to M2 which is the broadest measure of US money supply currently available, with MZM serving a similar function for the short term.
Previously I have commented on the 'shadow M3' figures done by a few enterprising fellows. As you may recall the Fed stopped publishing M3 a few years back. M3 itself was not the issue but rather the Fed chose to stop reporting a key component of M3 called 'eurodollars' or US dollars held offshore in Europe or anywhere else. The rationale was that it was too expensive to obtain this data. There are those who found this to be a bit disingenuous for a non profit seeking organization that operates on a cost plus budget.
Those who are attempting to estimate M3 gather what actual remaining data they can, and estimate eurodollars by 'modeling' them based on trends and correlations as they were in place when the Fed stopped reporting.
As I cautioned before from my own work in the BIS currency reports, there were huge flows of dollars into Europe during what I called the eurodollar short squeezes. The problem with BIS however is that their reporting lags by almost nine months, so the figures are never really current.
I suspect that as these figures unfold we will see that the Fed has created and made available large amounts of dollars that were presented to European institutions, and that this money is not being captured in any of the existing money supply figures, except perhaps the Monetary Base, and that estimates of M3 are likely to the low side because of this change in trend of eurodollars.
So what does all this mean, what is the important 'takeaway?' It means that deflation is not occurring at the moment because the Fed has taken those actions which it said it would do, plain and simple. On the other hand there is some inflation appearing but nothing notable with the exception of health care, service fees particularly financial, and a few hard assets. This could start changing even in the face of slack aggregate demand, but not in the face of another significant economic collapse such as in Europe or China.
And unfortunately recent evidence suggests strongly that the Fed has been misrepresenting what it has done in the financial crisis. This is unfortunate because it suggests that not only other things were misrepresented, but that there is an ongoing coverup of what has been done, and likely what is being done today. Coverups tend to feed on themselves, and provoke other new abuses of the public trust. Also it calls into question all that a private and guarded institution has said in the past based on their reputation. I do not think people fully realize the implications of this yet.
In this stage of the Currency War we seem to be in something like the phase of WW II called the 'Phoney War' that occurred between September 1939 and May 1940. But it does seem to be heating up.
Those who wish deflation to occur badly enough will find it where they will, whether it be in M3 estimates or credit figures. I find it highly ironic that when estimated M3 recently seemed to be showing deflation it was embraced by a particular chatboard site who previously had forbidden its mention when it had showed inflation some years ago. Further, credit is not money. Credit is a source of money creation as is the Fed's balance sheet. The Fed's Balance Sheet is not 'money' per se. It is a source of money creation.
It should also be remembered at this point that a fiat currency is backed by the economy of a country and its official cashflows (primarily taxes) as well as its reserves. As a country's GDP and cashflow deteriorates the soundness of its currency can deteriorate even if the nominal levels of money remain unchanged. I think we are seeing quite a bit of this today. This deterioration in the backing of a currency is no different from a devaluation in its effect.
Can deflation occur? Absolutely. Give me control of the Fed and I will give you a rip snorting deflation by raising the overnight rate to 20 percent and calling in the reserves so to speak.
But one cannot deal in possibilities when investing, merely safeguard or hedge against them based on the estimates of probability. Well, you can deal in possibilities, but this is largely a means of self-deception, a means of continuing to embrace a theory or investment strategy that has been proven incorrect when it is too difficult to give it up and admit your error. That difficultly may arise from practical matters, but it is my experience that it is normally attributable to stubbornness, or pride, and sometimes even corruption.
"Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof." John Kenneth Galbraith
Obviously gold and silver and some other things have been rallying smartly for the past ten years in response to the decisions made by the Fed and the US government of both political parties, whether they will admit it or not. When this changes, when the dilution of the currency stops and begins to recover to strength, then I would think it appropriate to change my own particular investment strategy, which is hedged against the unexpected even now. But not until then. I do not expect inflation to obtain serious traction until foreign governments start rejecting the dollar in size, or the velocity of money begins to obtain some traction in the real economy. The Fed assures us that they will act to control the spread of inflation when the time comes. But for now the banks appear overstuffed with cheap liquidity, something I like to call hot money.
This type of abundantly cheap, hot money tends to seek higher beta or risk, often in the form of equities and dodgy financial schemes and investments, rather than productive lending. As the CEO of a Fortune 500 was heard to observe in private, having paid an absolutely eyebrow raising sum for another company in the heady time of the tech bubble, "Yes I paid a high price, but my currency (company stock) is cheap." He was willing to take an outsized risk because he believed that his overvalued currency was going to become worth a lot less. He just did not realize at the time that it would eventually become nearly worthless. It did and he was sacked. I think the analogy to Ben and his Fed, and the way in which they are throwing dollars around, to private and especially to foreign banks, is quite analogous. The looting will continue until the value of the overpriced stock is depleted. That Wall Street will be taking about 8 percent of the total short money supply as its bonuses this year speaks volumes about the value of the dollar and its future.
I saw this coming in 2001 but have to admit I was terribly wrong on timing in 2004, having underestimated the Fed's willingness to obtain international banking cooperation, primarily from Japan the UK and Europe, to generate a massive housing bubble. I will not make that mistake again I hope.
And if you have been wrong in your assumptions or assessment, it is never a shameful thing to admit it, gather yourself together, and go forward from there, because all this indicates is that you have received new information and that you accept it, which is the high mark of intellect and objective science.
Even the mighty Nobel laureate Paul Krugman has recently expressed his disillusionment with Mr. Obama's Hooverism, Freezing Out Hope.
"What’s even more puzzling is the apparent indifference of the Obama team to the effect of such gestures on their supporters. ... Mr. Obama almost seems as if he’s trying, systematically,... to convince the people who put him where he is that they made an embarrassing mistake."
Contrast this with his earlier chastisement of those who were already recognizing that Barry the reformer was either an ineffective nincompoop or an establishment shill.
"Look, Obama didn’t pose as a Nation-type progressive, then turn on his allies after the race was won. Throughout the campaign he was slightly less progressive than Hillary Clinton on domestic issues — and more than slightly on health care. If people like Ms. [Naomi] Klein are shocked, shocked that he isn’t the candidate of their fantasies, they have nobody but themselves to blame." Paul Krugman, NYT June 16, 2008
I am not going to get into the relative merits of one course of public policy decision or another here. My point rather is to demonstrate once again that with a fiat currency the matter of inflation or deflation, within a range of exogenous constraints, is a public policy decision tied intimately into the form of government that one holds as its objective and the nature of the society that you wish to encourage.
I do not wish to single out Krugman with the tautological indictment of being human. He almost appears as a Diogenes, a beacon of objectivity, compared to his ideological counterparts. Too often economists cloak themselves in the robes of a quantitative and objective science, with such canards as the efficient markets hypothesis, supply side economics, the inefficiency of regulation versus unregulated markets, and bailoutism as hard facts, when they are nothing more than arguments in favor of one set of government policies or another.
And far too often they are doing it for pay it appears, which is intellectual dishonesty, malpractice if you will, that is inexcusable and contemptible, one of the reasons why economics is considered by some a disgraced, although not irredeemable, profession these days. But since these fellows are generally associated with the 'greed is good' school, which elevates the ends above all else, once ought to expect to hide the silverware, whiskey and women when they come to town.
Many things are possible, but not all things are equally probable. As Walter Bagehot famously observed, 'Life is a school of probability.'
For a nation that is a net debtor, deflation is tantamount to suicide. But other nations, most recently Germany in the past century, committed a form of national suicide in service to hubris, and an elite few, and a mistaken understanding of what constitutes a civil society and what it means to be human. They are certainly not the only society to have done this, and I would not presume that they are the only people who will have fallen prey to this self-destruction in the future.
So there is some precedent for disaster. Germany was certainly not the only society to have done this, given the examples of China, Russia, Japan, and Italy, and I would not presume that they are the only people who will fall prey to this self-destruction as well. Having high ideals or having previously suffered oppression is no guarantee of future goodness. Rather it is the attitude of yourself in relation to the 'other.' That is the whole of the law.
Indeed, such a temptation to dehumanisation is tailor made for a generation raised on the notion of their natural goodness, accepting themselves as they are, rejecting and tearing down any external standards of goodness and worth in other people. They see no need to change and work together, but rather to give in, to wallow, in their basest and most selfish impulses, self-centeredness, the greed-is-good meme of the me generation, in a time of general apostasy to all but the lowest form of our self. Class War and the Decline of the West
The madness of crowds seems to have been all the rage in the twentieth century, and what I see now are people who are more technically proficient, more cunning, more skilled in the ways of mass deception and intrigue, but alas, perhaps not more compassionate and wise, and understanding of what it means to be human, truly content with themselves, and simply happy.
So bear these things in mind and protect yourselves as best you can despite the temptations and deceptions of our all too human frailties. It will not be easy, but it was not easy for our parents or grandparents, and theirs and those before them, because it never is. That is the nature of this world. And even the once triumphant West at some point must learn to pull together again, or founder in a new season of infamy.
"For we wrestle not against flesh and blood, but against principalities and powers, against the rulers of the darkness of this world, against spiritual wickedness in high places." Eph 6:12
Reality briefly penetrated the fog of appearance this morning as US Non-Farm Payrolls came in at 39,000, a significant miss from the expected 150,000. Unemployment ticked up higher from 9.5% to 9.8%.
An analysis of the data showed a slight indication that the recovery has stuttered and stopped, but it will take a few more months data to confirm this.
The adjustments seems to dampen the potential headline number but are within bounds of the prior six years. The Birth Death Model actually came in negative which was a bit of an outlier but certainly a refreshing nod to reality.
Looking at the historical Oct-Nov growth in the unadjusted numbers for the past six years shows a clear downward trend from the high in November 2005, with the low coming in November 2008. The growth as it stands in 2010 is roughly the same as it was in 2004, although the 2010 numbers will likely be revised in the next two reports.
Stocks and the Dollar initially plunged on the news while gold rallied threatening to take out psychological resistance at 1400. I guess we now know why gold and silver were obviously hit by sharp manipulative selling yesterday, in order to take the prices down below breakout levels. Be on watch for shenanigans in the markets today, especially the SP futures markets.
There can be no sustained economic recovery until the median wage and employment improve and this requires specific reforms and programs to repair the damage caused by twenty years of irresponsible monetary, regulatory, and fiscal policy and a growing imbalance in the balance sheets of the middle class. Repairing the status quo merely restores the unsustainable.
The Fed's approach to quantitative easing is nothing more than an adjunct to the trickle down, supply-side approach. Provide money to the banks and the people will borrow; provide subsidies and tax cuts to those who have the most already and the condition of the many will improve. Trickle down, supply side, and efficient markets hypothesis are at best mistaken economic theories, and at worst coldly calculated propaganda by the same people who co-opted the political process and brought forward the control frauds that led to the financial crisis.
Silver got a very stiff gutcheck from the wiseguys when it hit resistance at 29 intraday. Gold followed it down on the same bear raid. It could not have been more obvious. Someone came into a thin market and started dumping contracts.
Tomorrow is the Non-Farm payrolls report and those that follow these things know that the metals are often hit around this event. Don't ask me why, as it makes less sense than the same sort of action around delivery dates and options expiration.
Perhaps this is about perception management. Some of the economic analysts talk as those perception were everything, all that really matters, as if they were from the Fernando Lamas School of Financial Management.
"It is better to LOOK good than to feel good, and dahling, you look MARVELOUS."
And so we are witnessing the Persecution and Assassination of the Middle Class as Performed by the Inmates of the US Financial System under the Direction of the Wall Street Banks.
When appearance finally meets reality the dissonance it throws out will shake the world's financial markets to their very foundations.
Mundus vult decipi, ergo decipiatur. T. Petronius
(The world wills itself to be deceived, so let it be deceived.)
As they said on Bloomberg TV today, 'the haves are doing very well.'
China seems to be encouraging gold and silver ownership amongst its people as a matter of policy, the better to cushion them against a bubble and collapse. This is also a means of diversifying their reserves without engaging the US and the fiat countries directly through more official actions with their banking reserves.
It also appears that the other BRIC countries are doing similar things as a response to a perception that rogue elements in the US and UK have co-opted the US financial system, and therefore the dollar reserve currency and the multinational banks for their own personal gain. This has been previously seen in more select economic gambits, generally in the Third World, referred to colloquially as the work of the economic hitmen.
To that point, China Stock Crash Reportedly Caused By Bank Manipulation
I was also struck by this historical quote from a recent piece in the Financial Times by Tom Palley titled: Deaf to History's Rhyme: Why President Obama Is Failing.
“For 12 years this nation was afflicted with hear-nothing, see-nothing, do-nothing government. The nation looked to government but the government looked away. Nine mocking years with the golden calf and three long years with the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that government is best which is most indifferent.”
Franklin D. Roosevelt, October 1936
An indifferent government, one that is either lax or complicit with powerful private interests, is the ally of the frauds and schemes and abuses that proliferated over the last twenty years. But control frauds, being an unproductive transferal of wealth, are based on growth and new victims, and so the impulse to find new venues is strong by necessity as the old haunts are drained of their economic vitality.
The rhyme of history being what it is, the hard money versus soft money wars have not gone away and seem to be heating up.
From Goldcore:
"China's growing importance to the precious metal markets was underlined by the news that Chinese imports have surged by more than 500% due to increased investment demand. Incredibly, China's gold imports were five times higher in the first ten months than in the whole of last year. Imports hit 209 tonnes compared to 45 tonnes for all of 2009, according to the Shanghai Gold Exchange. Trading volume of gold on the exchange in the first 10 months rose 43 percent from a year earlier to 5,014.5 tonnes.
Chinese buyers are concerned about inflation and the depreciation of the fiat yuan/renminbi and looking to gold as a store of value. Chinese people do not have trust in paper currencies due to their experiences with authoritarian government and hyperinflation.
Most of the 1.3 billion people in China only began to acquire and own gold in 2003 as gold ownership was banned from 1945 to 2003. The gold market was liberalised in 2003 and their demand is increasing from a near zero base. This means that the increase in demand is very sustainable and will likely continue. Concerns of an overheating economy, inflation and a housing bubble will lead to further Chinese diversification into gold."
What I find most disturbing are the actions of the English speaking peoples, who seem to be falling in line and marching off at the direction of their handlers without any meaningful protest.
One of the more interesting things that happened recently was the decoupling of gold and silver bullion from the equity market and the US dollar.
This is most likely an example of the primary trend reasserting itself after a short term period of artificial price manipulation for option expiration and the first week of the important December delivery at the Comex.
Another way of saying this is that in the short term markets often trade on 'technical factors,' that is, one group of market players may take an overweight position, as we saw this week in the put-call ratio in stocks. So today we had a sharp short covering rally.
Does that really mean anything fundamentally changed? Well, the spinsters can always find 'a reason' for the short term moves in stocks, but it is hard to imagine that what was a disaster last week suddenly becomes all wine and roses this week. Real economies do not shift gears that quickly, thank God. But the wiseguys will use their market positioning, news sources, and rumours to 'manage perception' as do other powerful groups such as the government.
By the way, I hope you have noticed that much of what you hear on the mainstream and from 'experts and analysts' verges on pure propaganda these days. Bloomberg has gotten so outrageous that I can barely stand to watch their shows during the day.
Today for example a nice young lady came in and explained how Social Security was really broke as of 2015 because 'the money was not really there.' Her point was that the trust fund is in US special obligations and since the government spent the money on general things (like tax cuts for the wealthy) it is gone and so cuts must be made.
Well, the US has also spent all the money it is using to pay the interest and redeem the principal on US Treasuries, and so by the same reasoning it ought to cavalierly default on those obligations as well. In fact it ought to default on those obligations first because a Trust is senior as a pre-allocated fund to a non-specific general obligation. But of course that never came up. But that is in effect what is happening with the Fed's quantitative easing. And this is making those who recently looted the system nervous because they have not yet had the opportunity to transfer their dollars into other hard assets and rents producing property.
The problem is that the system has never been reformed, and the money is not reaching the real economy, but merely being used to bail out the creditors who were principally responsible for the financial fraud and subsequent crisis in the first place.
Let's see how this plays out. But expect things to get more disruptive and blatantly unjust because of a lack of moral leadership from the top down and a general deterioration in the concept of duty, honor, and obligation to country and the people in our national leaders and the pampered princes of the 'me generation.'
Postnote: I have subsequently updated these charts to show the early action for Thursday 2 December. It appears to me that the market will either reestablish a trading range or make a breakout play to the higher targets around 1250 into the year end, setting up an early 2011 decline.
I have put up a longer term silver chart with an Inverse H&S formation that calls out 30.50 to 31 as a minimum measuring objective.
Gold is still struggling with the option expiration and a large overhang of potential orders that could stand for delivery at the Comex. Gold is a political metal, feared by the Central Banks of the developed nations, so the outcome is a little less predictable than might be otherwise.
Silver on the other hand is a dreadnought that takes no prisoners. Why is it able to shake off the kind of paper manipulation that seems to plague gold so often? It is because the central banks do not own any to lend on the cheap to their friends.
It seems only a matter of time until the exchange suspends trading and manages (forces) a cash settlement to bailout the big short interest held by the TBTF-who-must-not-be-maimed. That still will not resolve the artificial shortage that has been developing over the past twenty years or so. It requires time and effort to build mining capacity, and it appears that the preoccupation of the capital allocation has been slanted away from the production of real things, towards the development of better and faster systems of perception management, crowd control if you will, and wealth transference, from the many to the few.
This reminds of the famous anecdote that Boswell recorded, in which Samuel Johnson reacts to Bishop Berkeley's 'ingenious sophistry:'
"After we came out of the church, we stood talking for some time together of Bishop Berkeley's ingenious sophistry to prove the nonexistence of matter, and that every thing in the universe is merely ideal. I observed, that though we are satisfied his doctrine is not true, it is impossible to refute it. I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it -- 'I refute it thus.'"
Many will obtain a similar object lesson for themselves the hard way over the next few years, of the essential difference between the paper money that primarily has come to serve the bloated frauds and sordid schemes of a decaying financial elite that no longer represents accountability, equity, or sustainability, and the enduring value of real money that exists of its own accord, standing firm as the passing constructs and vain devices of men founder against it. There will doubtless be more ebb and flow, but in sum the resulting clash will be nothing short of epic, indeed.
The market is likely to chop ahead of the Jobs Report on Friday 3 December.
Post market note: It appears the perceived support at the 50 DMA was well founded and provided an opportunity for the boys to bounce it higher and sweep the small bear specs out of the way. This will likely continue at least until 'something happens.' Will it be the Jobs Report on Friday? What can one really say about such pervasive malinvestment and fraud.
"And I set my heart to know wisdom and to know the madness and folly of men. I perceived that this too is grasping after the wind. For in much wisdom is much grief, and he who increases knowledge increases sorrow." Ecclesiastes 1:17-18
Gold is hanging at the 1375 resistance, the former target of the breakout from the big cup and handle formation. It may take a little while, but if the markets hold together and gold can clear this level it may romp higher and reach our intermediate target more handily than most imagine, with perhaps some additional hesitation around the psychologically important 1400 level.
Silver may take the lead again once this option expiration and holiday shortened week is done.
But I think gold will tend to do better in a crisis, better than stocks and silver at least. So let's see what happens.
Banks Feel Threatened By the Bullion Bulls - Stills
The support levels in stocks are rather obvious. You might wish to keep an eye on the techs which are following but with some reluctance. The support on the NDX futures is 2100.
The metals action is remniscent of the other failed option expiration stuffing that backfired on the bears as we had noted last week. The difference is that silver has relinquished its leadership role to gold at least for today.
A whiff of cordite has caused gold and stocks and to some extent silver to diverge today significantly, but tomorrow is another day. The call holders will convert to futures and their positions, leverage and will to hold them might be tested.
These markets are riddled with control frauds, but they are the works of men. So while they can be oppressive, they are hardly omnipotent.
Interesting action in the precious metals ahead of the gold and silver Comex option expiration.
"Now listen, you wealthy, weep and wail because of the misery that is coming on you. Your wealth is rotting, and moths have eaten your clothes. Your gold and silver positions are false. Their corrosion will testify against you and eat your flesh like fire." James 5:1-3
Personally I would hope they do not even allow them to pass anything but a pro forma budget and then show them the door, because everything they do is tainted.
The elections will be a referendum on the financial corruption between the banks and the government elites in Ireland as they were in Iceland.
Why the Irish would yoke themselves and their children for years to save the multinational banks is puzzling. But it will not have been the first time that the Irish people were sold by their leaders to the monied powers in foreign lands, and it likely will not be the last.
Bloomberg
Euro Drops as Irish Government Plans to Dissolve After Budget
By Catarina Saraiva
November 22, 2010, 3:20 PM EST
Nov. 22 (Bloomberg) -- The euro fell for the first time in four days versus the dollar and yen after Ireland’s government started to unravel and Moody’s Investors Service said it may lower the nation’s credit rating by more than one level.
The dollar and yen advanced against most of their major counterparts as a drop in stocks encouraged investors to seek refuge from Europe’s financial crisis. The euro slid from a one- week high against the dollar as Ireland’s Prime Minister Brian Cowen said a day after asking for European aid that the government will resign following passage of the nation’s budget.
“Political uncertainty in Ireland could risk the timely implementation of the new budget and the austerity measures required to bring the deficit down,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “That’s a large negative for the euro.”
Éirinn go brách
Genuine enforcement or bread and circuses?
Only time will tell.
The fish seems to be getting a little bigger. But only a little, and still on the relative periphery of the school.
What will be most interesting to watch is how the investigations and settlements, if any, unfold. Will they be 'cost of business as usual with no admission of guilt' fines, or will serious federal prosecutors get involved and start turning over the small fry to get to the heart of the scandals. Will they merely rustle the branches or strike to the roots? That is the difference between the appearance and the reality of reform.
However it turns out, be aware that fraud is still pervasive on Wall Street and in the US markets, and the status quo has been maintained by both political parties who receive enormous funds from the corporations in the FIRE sector.
Connecticut is to financial racketeering what Chicago was to the Mob and Prohibition. But always the real power is headquartered in New York.
Massive Insider Trading Investigation Could Nail Wall Street's Biggest Names
I would be quite a bit more impressed if the raids were on a few of the TBTF banks who make these hedge funds look like small time street dealers by comparison. But that would expand the investigation uncomfortably close to the inner warrens of the Washington Beltway, and the real seats of power and corruption, the old powers and monied interests.
WSJ
FBI Raids Two Hedge Funds Amid Insider-Trading Case
By SUSAN PULLIAM, JENNY STRASBURG And MICHAEL ROTHFELD
Federal Bureau of Investigation agents raided the Connecticut offices of hedge funds Diamondback Capital Management LLC and Level Global Investors LP amid a far-reaching insider-trading investigation.
"The FBI is executing court-authorized search warrants in an ongoing investigation," said Richard Kolko, an FBI spokesman, who declined to comment further.
Both hedge funds are run by former managers of Steve Cohen's SAC Capital Advisors. Level Global Investors LP is a Greenwich, Conn., hedge-fund firm run by David Ganek, a former SAC Capital trader and art collector. He started Level Global in 2003 and earlier this year reported managing about $4 billion in assets.
Diamondback Capital Management LLC is based in Stamford, Conn., and was started in 2005. It oversees more than $5 billion in assets, according to SEC filings.
The move by the FBI follows an article by The Wall Street Journal describing an insider-trading investigation that is expected to encompass consultants, investment bankers, hedge-fund and mutual-fund traders. The investigation is said by people close to the situation to eclipse in size and magnitude past insider-trading probes..."
There has been no resolution of the charts ahead of the Comex option expiration and the holiday shortened week in the US.
