28/01/2016

Batten the hatches, A response to the US Federal Reserve - by Jeff Fitchett

We are in a very precarious position right now because the powers that be are proclaiming that all is fine, but the facts state otherwise.  This is very dangerous for the average person and history shows that when reality and fiction widen to polar extremes significant social carnage and personal misfortune follow.  For instance, back in July of 2005, Ben Bernanke (Former head of the US Federal Reserve) said; "We've never had a decline in house prices on a nationwide basis.  So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.  I don't think it's gonna drive the economy too far from its full employment path, though."  He went on to say; "these price increases largely reflect strong economic fundamentals."  A year later the housing market peaked and all hell broke loose beginning in 2007.  The Great Recession that followed was the worst economic calamity since the Great Depression.  Not only that, Central banks printed tens of trillions of dollars to backstop the global financial system.  

The aftermath of the 2008 financial crisis has only grown worse in size and the magnitude of the eventual fall-out will be unlike anything the world has ever experienced.  I am very comfortable making such a bold statement because economic data has never been this bad in human history.  The world economy is approximately $78 trillion USD in size.  Global debt currently stands at approximately $200 trillion.  Global derivative contracts are estimated to be about $1.5 quadrillion.  Too big to fail banks are much larger now when compared to their size during the 2008 financial crisis.  The average person is in a worse off position.  Since 2008, the middle class has shrunk in size, consumer debt has increased globally, income levels for the majority of people have declined and the gap between the ultra rich and average person is the widest in history.  

The Federal Reserve just finished two days of meetings and their subsequent press release is the most important piece of financial & monetary information that politicians, financial industry executives and media will report on.  I am going to dissect and debunk the entire press release.  First off, here is the key portion of the release:

"Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months."

Labour market conditions have not improved.  This chart shows that the labour participation rate is the worst it has been in over 30 years.  

The December 2015 Bureau of Labour Statistics Payroll Jobs report was manipulated.  Dr Paul Craig Roberts did an excellent job breaking down the numbers.  He stated; "the actual reported gain in new payroll jobs prior to seasonal adjustments was only 11,000. The seasonally adjusted gain was 292,000. In other words, seasonal adjustments accounted for 281,000 of the 292,000 reported jobs. There is a case for making seasonal adjustments, but not when seasonal adjustments account for 96% of the jobs gain."

The Fed stated that economic growth started slowing late in the year.  That is false.  Economic growth has been slowing for years. Oil prices have plunged because demand is dropping while supply is increasing.  If economic conditions were growing, as we are lead to believe, oil prices would be moving higher.  





The Baltic Dry Index is a measure of the cost of shipping dry goods via bulk cargo ships.  In boom times the rates go up and during recessions they drop.  Currently, the Index is at the lowest level in its history.  Hence, economic conditions are contracting.  


According to the Federal Reserve, household spending has been increasing.  This is false.  Household spending has been in decline.  In fact, Walmart is closing 269 stores and laying off 16,000 employees.  They are the biggest beneficiary of household spending and their store closures represent a drop in spending.  

Here is a list of companies that have announced layoffs in January 2016: Staples, Norfolk Southern Corp, VMware, Coca-Cola Finance Services, Fras'le North America, Polaris, Dupont, Xerox, Alpha Natural Resources, Rogers Media, Sprint, Guardian media Group, Qualcomm, Swamp Donkey Oilfield Services, Boeing, Schlumberger, Canadian Pacific Railway, Carrier Corp, Southwester Energy Co., Pearson Plc, Barclays Bank, Devon Energy Corp, Nephron Pharmaceuticals Corp, FanDuel, US Steel Corp, Mondelez, New York Air Brake, Morgan Stanley, Tiffany, Noble Corp, Yahoo, Contractor KBR, Potash Corp of Saskatchewan, CableLabs, Johnson & Johnson, Areva North America, Tata Steel, Tenaris, Regions Bank, Sam's Club, Wells Fargo, Zoosk, Warren Steel Holdings, Reed Smith, The Minacs Group, Goldman Sachs, SandRidge Energy Inc., GoPro, Noranda, Vermont Yankee, Aeropostale, Fenner, GE, BAE Systems, BP Energy, New York Life Insurance, CNH Industrial, MLive Media Group, Intrepid Potash, Spirit Aero Systems, Blackhawk Mining, Sunrun, Mixpanel, Essar Steel Minnesota, Allure, Johnston Press Group, Republic Steel, Avon, Emmis Communications, AIG, Morrison Healthcare, Madison Oscar Mayer, Macy's, Acosta Sales & Marketing, Princess Yachts, Monsanto, SolarCity, Martha Stewart Living, Faithlife Corp, Philadelphia Magazine, DRS Technologies, Freightliner, Pinnacle Mine, Olin Corp, Signal Peak Energy, EMC Corp.  In addition, universities, colleges, municipalities and other government funded agency's are laying off.  Keep in mind, the list of companies I provided were only announced in January.  I did not bother to search for previous months!

The Fed stated that business spending had increased "moderately". This is false.  See the list of companies laying off above and review the chart and data on Caterpillar listed below.  I believe that Caterpillar is an excellent bellwether for the global economy.  

The following is a quote from an article released today by ZeroHedge

"Today, CAT confirmed the flow through from this depressed picture when it announced that not only did revenue tumble by 23% to $11 billion, but it missed already deeply cut estimates of $11.4 billion, leading to a 111% collapse in operating profit which from $1.1 billion turned into a $114 million loss in the quarter. To be sure, the company tried to pull an Alcoa and stuff massive restructuring charges in the quarter amounting to $689, boosting non-GAAP EPS by $0.89 to $0.74, however one can simply ignore this latest accounting fudge attempt."

The Federal Reserve stated that the housing market has improved.  This is false.  The housing market is brutal.  Home ownership is at the lowest level it has been in 48 years.  The chart I provided is from the Federal Reserve website!  

They are still forecasting 2% inflation and a pick up in economic activity.  This utter nonsense!  Currencies, bonds, stocks, commodities, housing prices and many other items are dropping in price.  Food prices are going up drastically in countries that import because of their depreciating currencies.  I fully expect Central Banks to unleash massive rounds of money printing to save the global financial system.  I expect announcements will be made in the coming months.  

My question for you is who do you believe; the Federal Reserve or the facts that I have provided?  Remember, the path you choose to follow will impact you one way or another.  One path will help you mitigate misfortune and the other path will guarantee you misfortune.   

"Think for yourself. Trust your own intuition. Another's mind is not walking your journey, you are."        Scottie Waves

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson

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