by Dave Kranzler, Investment Research Dynamics:
That [the unchecked market intervention by the Fed] will never change, Bill. Here’s what will happen: 99.5% of the public will NEVER believe that gold is the solution and they don’t even care if it’s manipulated. But when the point in time occurs when it becomes obvious to most that they have to have gold to stay afloat, it will be too late. There will be LOOONG lines around the block at coin shops. People in the front of the line will be able to sell some of their gold and silver to people in the back of the line for DOUBLE the price they just paid. It will be similar to the Weimar Republic when someone would order a cup of coffee, drink it, order another one and the 2nd cup was twice as expensive as the first. That day may not be far off. – my email exchange with Bill “Midas” Murphy of Lemetropole Cafe
If it’s not obvious to anyone by now, then those “anyone’s” are not following the news. All private-sector sourced economic data is showing an economic collapse in progress. The exiting home sales data is not private – it’s quasi-Government because the statistical seasonal “adjustments” programs used by the National Association of Realtors is the same algorithm used by Government statistical magicians.
Just take a look at the list of headlines in Zerohedge this morning – this is not a product of “conspiracy theory” website – it’s the economic headlines listed in one place:
Stunning Satellite Images Of The Global Tanker Glut
Auto Sales Tumble In The Bellweather Month of May
Construction Spending Collapses – Worst Since April 2009
US Manufacturing Weakest Since 2009
The Federal Reserve Has Created An Unprecedented Disaster For Pension Funds
Goldman Fires Dozens Of Investment Bankers
Those headlines show the truth in one line-up. I can guarantee you that nearly every mainstream media source of business news will not list those reports today in one place and the reports themselves will be nothing but mangled propaganda and spin.
I suggested a couple months ago that auto sales would start tanking hard this summer. The statistical pool of humans who can fog a mirror and do a “sign and drive” for a car loan that exceeds the value of the car has been largely used up. Maybe if the driving laws are changed to enable anyone over the age of 12 to drive, the Fed/Govt can kick that can further down the road.
I want to focus on the last two bullet points because they are the most revealing about the degree of rot beneath the elitists’ schmear of mascara that’s being applied heavily to cover up the truth.
Wall Street banks are usually the last segment of the business world to fire staff. We’ve already witnessed many major GDP sectors unloading payroll: manufacturing, energy, retailing, auto OEMs, etc. A friend of mine drove to Utah this past weekend and saw miles of rail freight cars sitting idle on the tracks. Rail freight activity is like the “nerve center” of an economic life-system. It directly reflects the relative degree of activity at every level of the economic model from raw material transport to finished product distribution. If rail cars are sitting idle it means economic activity is sitting idle – supply creation and demand usage…at every level in the “food” chain.
The point here is that, if Wall Street is chopping heads, it means that not only has economic activity ground to halt, but the crystal ball perma-bull forecasters deep inside the banks do not see any hope of renewed business activity in near to intermediate future. Banks like Goldman will do anything to stir up financing activity. If financing activity can’t be jolted from the corpse, then it’s time to bury the corpse and get rid of the grave-diggers.
What’s astonishing is that after that line-up of news hit the tape, the S&P 500 initially dropped down over 9 points but since then has “rallied” back to nearly flat on the day. How is this at all possible unless the Fed is in there preventing the inevitable? The intervention has become absurdly obvious. I’ve concluded that one of the primary drivers of the need to keep the stock market from collapsing is the pension problem.
A friend of mine did an exhaustive, in-depth study of public pension funds. He concluded that if there’s a 10% decline in the stock market for any sustained period of time, every pension fund will collapse. The Central States pension fund manages the Teamsters pension in several States. The S&P 500 is near an all-time high and every other primary asset has been inflated by the Fed to historical levels and this pension is still collapsing. That’s just a “sniff” at how bad the problem really is. The State of Illinois public pension fund is one of the largest in the country and it’s on the verge of collapse.
I was chatting with him about the cash inflows and outflows at his particular fund, which theoretically is not “underfunded” (but it really is). I was stunned to learn that outflows exceed inflows every month and they have to sell assets every month to fund beneficiary payments. This is because, in order for the fund to achieve cash flow “neutrality,” it needs to generate an 8% ROR. Even though we’ve had 7 years of Fed-driven stock and bond price appreciation, all of these pension funds are still underfunded. Last year the returns were flat to down. Every year that returns are flat to down, every fund with an assumed 8% (some are set at 7.5%) hurdle-rate for cash flow neutrality goes in the hole by 8%.
This is why the Fed has to do whatever it takes to prevent the stock market from tanking. Yesterday was a prime example. The S&P 500 was down about 11 points with 45 mins left in the trading day. By the close it was down only 2 points. The Fed pushed it up in a 45 degree angle to positive territory but a flood of sell orders hit the tape with about a minute left. The Fed couldn’t keep the index green but it was a “victory” nonetheless. The market took back the other nine points going into today’s open, but the Fed has managed to push it back to largely unchanged from yesterday’s close.
I don’t know how much longer the electronic trading systems will tolerate this degree of intervention. We do know that the Fed “unplugs” some of the electronic trading platforms when sell orders flood down those HFT “pipes.” Notice how the market never “breaks” when the buy orders flood those very same “pipes.” Funny thing, that.
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