The degree and level of propaganda now flowing from the Establishment
and the Establishment-controlled mainstream media is on par with that
of the old Soviet Politburo or German Third Reich. In fact, I’d
confidently propose that this point is incontestable.
With modern technology and regulations which have made Fed operations
and accountability tragically opaque, I have zero doubt that the Fed
and the Government have managed to turn the stock market into another
propaganda tool. Studies have shown that, over the short term, the
direction of the stock market and consumer sentiment measures are highly
correlated.
Thus, pushing the stock market a lot higher is a mechanism that can
be used to influence the public’s sentiment and willingness to spend.
This is critical after an election in which the political party
controlling Capitol Hill changes and – more important – during the
holiday shopping season.
Without question the U.S. economy is beginning to quickly crumble.
If you “peel away” the manipulative techniques applied to the economic
reporting it reveals that every segment of the economy is now
contracting. Even the factory orders report for October released
yesterday – which showed a 2.7% gain over September – is still down
2.3% YTD vs the same YTD period in 2015. Strip away the transportation
component and it’s down 2.7%.
With interest rates on the long end up
over 100 basis points in a very short period of time, the Fed’s balance
sheet has taken a big hit. It currently owns over $4 trillion in
Treasuries and mortgage securities. Assuming an average duration of 10
years on its holdings, the market value of the Fed’s balance sheet has
dropped 8.4%, or approximately $320 billion. As of this past Thursday,
the Fed’s balance sheet showed $46 billion in book equity. If the Fed
were forced to mark-to-market its fixed income holdings, the Fed’s net
worth would be significantly negative – close to $300 billion negative.
Think about that:
the only thing backing the value of the U.S.
dollar right now is the U.S. military and a Central Bank with a massive
negative net worth. –
excerpt from IRD’s latest Short Seller’s Journal
Market intervention in this manner is an attempt to convince the
public that the economic system is healthy and will be even healthier in
the future. As such it’s another subtle propaganda tool – a perception
management device. If the Fed were step away from the market, the
stock market would rapidly re-price to reflect the true underlying
economic reality. In short, stocks would crash and concomitantly gold
and silver would soar.
The Fed injected billions into the system in late 1999 ahead of
Greenspan’s Y2k scare. It led to the biggest stock market blow-off top
of all-time.The current market is quite similar, only the economic and
financial fundamentals underlying both the public and private sectors of
the system are far worse than they were in 1999.
The ONLY thing that can explain the move in the stock market since
around 2:00 a.m. EST after the election is massive Fed stimulus in some
form – either direct cash injections done in a format that won’t show up
on the Fed’s balance sheet or a massive spike up in the availability of
short term credit lines made available to banks and extended to hedge
funds. There is no other explanation.
Today for example, the stock market is spiking higher AND bond prices
are higher/yields lower. This makes absolutely no sense and can only be
explained by official intervention of some sort.
Gold and silver will “sniff” this out and at some point I expect to
see gold begin to move a lot higher and the dollar sell-off
precipitously. I also expect that the Chinese are going to send their
response to Trump’s inimical overtures on Twitter by accelerating their
sale of U.S. Treasuries.
lf the same GAAP accounting standards used in 1999 to measure
corporate earnings – the standards having been relaxed more almost every
year since 2000 to enable companies to report higher GAAP earnings –
were applied to today’s earnings numbers, we would see that the current
stock market is by far the most overvalued in history.
This will not end well.
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Dave Kranzler spent many years working in various Wall Street jobs. After business school, he traded junk bonds for a large bank. He has an MBA from the University of Chicago, with a concentration in accounting and finance, and graduated Oberlin College with majors in Economics and English. Dave has nearly thirty years of experience in studying, researching, analyzing and investing in the financial markets. Currently he co-manages a precious metals and mining stock investment fund in Denver and publishes the Mining Stock and Short Seller Journals. Contact Dave at dkranzler62@gmail.com.
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