Ben Bernanke Is Now A Blogger…God Help Us!

On Monday we were greeted with a Tweet by Ben Bernanke introducing his new blog.  His first two blog entries were to discuss why interest rates are so low and why Larry Summers Secular Stagnation thesis is wrong.  Well well well! Where do I begin.  I feel an epic rant coming coming on.  I will try to contain myself.

Apparently the reason why interest rates are so low is not primarily due to the Fed but primarily due to the state of the economy.  Ahh I see…of course.  This guy sounds like my 11 year old son trying to spin his way out of why his 9 year old sister is crying and there is a red mark on her face.  “Did you hit her?” “Yes but she….” As you can imagine whatever comes out of his mouth next is just utter nonsense.  He is not supposed to hit his sister.  Interest rates are low but not because of the Fed but because of the economy.  Just absolutely absurd.  If we did not have a Fed the interest rates would be set by the market.  Ben needs to understand that the Fed does not exist in a vacuum but that their actions have an effect on the economy in complicated feed back loops.  Had we let capitalism do its job many companies would have gone bankrupt in the financial crisis and the recession would have been worse but guess what we would be recovering by now with a true secular recovery and a real bull market.  We would have restructured the debt and recapitalized companies and households with debt loads that could be serviced by the existing income.  Instead we have kicked the can down the road and put impaired private debt on the Global Governments balance sheets which will make the the last down turn look like a cake walk compared to the coming horror show.

Instead we have an abortion of a recovery that was forged in a forced credit expansion.  Ben in his wisdom decided to solve a debt problem with more debt.  That is the definition of insanity.  To keep doing the same thing over and over again hoping for a different result.  It stopped the bleeding temporarily but solving a debt problem with more debt needs continual expansion of credit in order to prevent defaults on the outstanding debt.  The problem is that eventually the market reaches a point were it say no mas!  We may be close to that point.  How do I know that? Currencies, commodities and credit spreads are suggesting that we are quickly approaching the end game.

In his next blog he decided to challenge Larry Summers about secular stagnation.  He does not believe we are experiencing that.  I contend there is secular stagnation and that his Debt creation is the direct cause of it.

Ben since you decided to enter the blogosphere I challenge you to debate the fact that I believe your policies have caused secular stagnation and your QE is directly responsible for the deflation that is currently raging across the globe.

In May of last year Einhorn commented on how his meeting with Bernanke scared the crap out of him:

“I got to ask [Bernanke] all these questions that had been on my mind for a very long period of time, right? And then on the other side, it was like sort of frightening because the answers weren’t any better than I thought that they might be. I asked several things. He started out by explaining that he was 100 percent sure that there’s not going to be hyperinflation. And not that I think that there’s going to be hyperinflation, but it’s like how do you get to 100 percent certainty of anything?”

Read Ben’s blogs for yourself and you will come to realize that these folks that you think are Gods have no idea what the hell their policies do in the real world.  They are academics who are clearly book smart but do not operate in the world in which you and I live in.  They have never managed P&L risk.  His blogging does not come at a good time for the omnipotence of the CB meme.  The more he talks the more people will realize that Fed Chairs are little men and women behind the curtain and not the all powerful OZ! God help us all!

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-inaugurating-new-blog

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/31-why-interest-rates-low-secular-stagnation

 

 

 

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Alan Watts is a British born philosopher who popularized Eastern Philosophy for a Western audience.  I came across his musings on peaks and valleys (cycles) and how they go together.  As I was listening, it struck me that the Fed and all the other central banks are deathly afraid of the valley.  Valleys must not be allowed!  The super leveraged economies of the world can not handle a growth scare because a recovery that was born and baptized in credit needs constant credit creation (more debt) to sustain itself or it implodes.  The longer they delay the inevitable and stretch this stock/credit cycle the deeper the valley once we descend.  Sit back, relax, open a bottle of wine and listen to the soothing voice of Alan Watts as he waxes upon the inevitable decent into the valley.  In fact he believes the valleys may have more meaning than the peaks.

Food for thought: Since the inception of the DJIA the stock market has averaged a 4 year cycle from low to low.  Some cycles are longer and some are shorter.  Prior to this cycle, the longest 4 year cycle ever was 77 months which ran from October 2002 to March of 2009.  The advance from that low was 60 months into the peak of October 2007.  Currently we are in month 72 of the current advance with the last ATH in February of this year.  So unless you think that we are already going to meaningfully exceed the longest prior 4 year cycle record of 77 months, it is likely that this cycle ends in the next 5-7 months.  If we are in a secular bull market then the average decline into a 4 year cycle low over the history of the DJIA is in the range of 25-30%.  If we are in a secular bear we know that all secular bear market four year cycle lows will take out the prior 4 year cycle low which, in this case, is 666 on the SPX.  So whether we are in a secular bear or bull a meaningful correction is coming very soon.  Unless the CB’s can continue to deny mother nature this cyclical math suggests that time is running out and the piper must be paid soon.  Could I be wrong? Absolutely! However the CB’s better have some more magic and fairy dust because we are long in the tooth in time.  I am always asked what will be the catalyst?  The catalyst is that time has run out.  Price and time…people always forget time.

 

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Usually we get a violent snap back when we have a close below the 100 day MA on the SPY.  One occurred yesterday.  I would not call this a bounce yet.  Has the character of the market changed?  That remans to be seen.  Yellen our High Priestess speaks at 3:45. Nice timing.  Have a good weekend everyone!

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For the first time since stalking this equity topping process in March of 2014 I am 100% short my capital.  I started shorting this morning.  I am letting my IBB puts from Friday run.  The semis, transports and bio’s are getting slaughtered today.  Transports took out the March trading cycle low.  I suspect the Dow and SPX to follow.  I have stops in place. I suspect the narrative will soon shift to how weak the economy is and earnings expectations coming down.  March lows on cash SPX needs to be defended or its game on to the down side.  I will cover quickly if wrong but my Third Eye is tingling.  I predict QE4 by September/October.  The Fed is behind the curve.

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The run up into the solar eclipse has made Biotech investors giddy with speculation.  Pre-Market the IBB was $375 now it is $366.  This looks like an exhaustion move to me.  The rate of ascent in the IBB chart looks like it wants to fold back on itself.  Last time we had this rate of ascent in March of 2014 we had a 14% drawdown.  The Fly has flagged the overbought situation here.  I hope you don’t mind if I take advantage of your profit taking. I have purchased some Biotech puts out three months into the frenzy this morning.

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The Fed is not behind the curve on raising rates its behind the curve on easing.  They have lowered their growth projections fairly dramatically.  The venerated dots just moved quite a bit.  After this sugar rush in equities today and perhaps some nominal new highs reality will set in.  There is currently a dollar shortage.  The only way to curb that is to start printing.  QE4 IS COMING! The Fed now has ZERO credibility.  Lower equity prices will force the printing.

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Another FOMC meeting and another idiotic focus on the whether or not the word “patience” is going to be removed form the minutes of the meeting or not.  This is completely absurd and sad.  Here is the deal in my humble opinion: IT DOES NOT MATTER!  The bottom line is the only way the bulls win tomorrow is if Janet recognizes the specter of deflation and announces QE4.  Absent QE4 then the economy and eventually stocks are going to implode.  Lets have a look at the fundamental scorecard shall we.

Bears have:

1) Both Global and US GDP are being revised lower.

2) Oil is crashing again as I write this.

3) High yield debt and emerging market debt spreads are quietly widening again.

4) S&P earnings continue to be revised lower due to a myriad of reasons.

5) Insider selling is at epic levels.

6) Currency crisis across the globe with a parabolic Dollar wreaking deflationary havoc worldwide.

7) Yield curve is flattening and bonds are rallying again.

8) 80% bull to bear ratio.

9) Putin threatening to use nukes if we give tanks to Ukraine.

10) Greece losing its mind again and 3 year bond yields above 20%.

 

Bulls have:

1) 24 central banks have eased since January.

2) ECB QE has started.

3) The Fed might leave the word “Patient” in.

 

Basically Bulls are bullish because fundamentals don’t matter and all that matters is central bank liquidity.  So if you are long its because you believe that central banks are omnipotent.  Its a good belief system.  It has worked for six years straight.  I get it, I really do.  I was with the bulls until last year.  The difference now is that the Fed is tightening by ending QE and merely thinking about raising rates.  As a result the Dollar has gone parabolic and a deflation is raging from the emerging markets towards the center.  A strong dollar imports deflation and will cause revenues and earnings for US companies to go lower.  If you think that does not matter and that the multiple of the market will expand while earnings are re-rated lower go for it.  I am old fashioned and think that debt defaults, negative earnings revisions, receding dollar liquidity and a global recession will bring equity prices down.  I am a heretic.

I think whether Yellen includes or excludes the word “patience” is irrelevant.  The deflation Genie has been let loose from the bottle and unless she does full on QE the US stock market is headed south.  Nature hates disequilibrium.  Everyone is burning their currency and we are not.  Stocks will go lower to force Janet to burn our currency as well.

I leave you with Patience by Guns N’ Roses:

 

 

 

 

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Since January we have had 23 Central Banks ease.  The S&P is now below the December highs.  Can you imagine where we would be if they had not eased? Watch Spinal Tap’s Nigel Tufnel describe monetary stimulus.

Enjoy your weekend!

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The bulls have won.  All is well in the world.  All those crazy deflationary fears from a few weeks ago have disappeared.  The charts look fantastic.  There are no more bears left according to Investor Intelligence Survey clocking in at 80.84% bulls.  In fact we are at a bullish percentage higher than 2007 (76.26% bulls) and 2000 (67.84%bulls) tops.  What could go wrong? After all, the bullish percentage was 80.31% at the 1973 top so obviously we are going higher.  The super duper smart hedge fund community agrees as their net exposure is at highs again.  Why would anyone not be long in front of the ECB QE which begins this week?  Additionally, stock buy backs reached a crescendo in February at $98 billion and Greece is but a distant memory.  Then there is the March bullish seasonality that has been sited.  Since the market trouble in January, a stunning 21 Central Banks have eased including China yesterday.  Its a good thing they all eased because clearly its working as the SPX is a whopping 14 handles above its December high.  Only a complete jack-ass or mad man would short this market.

On Friday I initiated shorts……..I am that jack-ass and mad man.

Markets never top on bad news.  I only see good news.  Additionally, a very special (double secret probation) indicator is flashing warning signs just like it did in September.

The above picture and quote is Irving Fisher who was a famous economist from the 20’s and 30’s.  His quote was curiously timed.

 

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An investor by the name of Paul Gambles pointed out that Janet Yellen’s testimony before congress reminded him of the the movie Being There staring Peter Sellers.  As soon as he said that it hit me that he was right.  I watched the testimony and beside being bored out of my mind I also found myself at times thinking what in God’s name is she talking about.  She makes no sense at times.  Why is the better part of the financial community listening to this drivel?  Primarily because we all think that behind the Fed speak there must be some deep intellect brewing.  Unfortunately Janet is Chauncey Gardener.

In the movie Being There Chauncey is a simple-minded gardener who has spent all his life in the Washington D.C. house of an old man. When the man dies, he is put out on the street with no knowledge of the world except what he has learned from television.  After getting hit by a limousine, he ends up a guest of a woman (Eve) and her husband Ben, an influential but sickly businessman.  Chauncey becomes friend and confidante to Ben, and an unlikely political insider in Washington.  Because he is the friend of Ben everyone thinks he must be someone special.  In reality he is a simpleton who basically speaks gibberish about his garden and eventually gives advice to the President of the United States.  It is great movie.  The main theme of the movie is that many people misunderstand the utterances of this simpleton but assume he must be brilliant if he is friends with Ben.  When Chauncey speaks people hear what they want to hear.  Obviously in the haze of the Fed speak we all basically hear what we want to hear because quite frankly it really is gibberish.  It is designed to be gibberish.  Because Janet is the head of the Fed she must be brilliant right?  The other theme of the movie is that just being there at the right time through happenstance can make someone an important influence on history.  Janet is more than likely to preside over the largest debt deflations the world has ever seen.

Check out these two videos and you will see the similarities in the gibberish spoken.  The global financial system rests with this woman.  In her testimony she made no mention of the $9 trillion in dollar denominated debt in the Emerging Markets that is ripping a hole in these economies and currencies as the dollar rises.  Is she aware of this problem?

Here are the Janet Highlights

Here is Chauncey giving advice to the President:

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