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The Most Foolish Report Ever Written

May 24, 2014

Last week, our theme was the Fed’s failure to generate a “recovery” through six years of historically easy monetary policy. In “2.6% – ‘Nuff Said” and “The Most Damning Proof Yet of Fed Failure,” we demonstrated how the entire world is rapidly becoming wise to the Fed’s ineptitude and thus, the complete collapse of whatever remaining “credibility” it still has is not just inevitable but imminent.

This week – in “Relax, Gold and Silver Owners – This Is What You’re Up Against” and “Why Gold Cannot Lose In Simple Pictures,” we’ve “comforted” readers that amidst the most heinous, blatant price suppression in modern history, gold and silver fundamentals have never been more powerful; particularly at current prices which are so far below the cost of marginal production it appears all but impossible to push them down much further.  Oh yeah, that and the fact that global demand is surging from Russia, to China, to India – the latter of which is on the cusp of seeing massive pent-up demand unleashed now that the gold-friendly Modi government is expected to reverse last year’s suicidal PM import restrictions which accomplished NOTHING but a proliferating black market.

Gold Net Imports from Hong Kong

SRS Rocco Report

As for the so-called “reasons” we’re supposed to fear PMs, let’s take a ride through the “wide world of horrible headlines” starting with the “Land of the Setting Sun,” whose government may have perpetrated the “biggest lie in history” last week, in reporting “5.9% GDP growth” in the first quarter.  However, they clearly aren’t fooling anyone as by now the world is starting to realize the Bank of Japan is defending Nikkei 14,000 as zealously as the Fed is supporting interest rates – in both cases to “prove” their hyper-monetary policies are “working.”  Not to mention, that the Japanese economy is in FREEFALL – as evidenced by this morning’s reporting of a second straight contractionary PMI reading; which can only worsen significantly, now that the catastrophic national sales tax increase is in effect.

Meanwhile, China also reported a contractionary PMI this morning, whilst Europe’s was significantly lower than anticipated; i.e., on the cusp of outright contraction with key components like France deeply in recessionary territory already.  Thus, with its gargantuan real estate/construction bubble is amidst an historic collapse, the PBOC’s recent earth-shattering decision to weaken the Yuan will likely be maintained indefinitely causing a “chain reaction” yielding every imaginable economic misery from rising Chinese inflation to an acceleration of the “final currency war.”  And as for Europe, it’s by now a fait accompli that “Draghi’s Reckoning Day” will be the ECB’s June 5th meeting – as nearly guaranteed by ECB board member Yves Mersche this morning.

And here in the United States of economic purgatory – en route to hell once the Fed’s unprecedented globally destructive money printing, market manipulation, and propaganda scheme inevitably fails; the bad news stretches as far as the eye can see – with no end in sight.  But don’t worry, all one has to do is repeat the word “recovery” over and over – like “there’s no place like home” – and darn the facts, it must be so.

To wit, the Fed has been pronouncing “recovery” for 59 months now – making it the third longest “economic expansion” in history, if only from the low water mark of the depths of the 2008 crisis; and yet, GDP growth was at best flat last quarter (yeah, I know, “the weather” was to blame).  Not to mention, the Labor Participation Rate is at a 35 year low (and an all-time low for 20 somethings); median household income is at a 17-year low – as prices of items we “need versus want” are at or near all-time highs threatening to explode care of generational droughts; and entitlements support more than half the population with horrific demographics guaranteeing a rapidly expanding “dependency nation.”

Zero Hedge

And oh yeah, the national debt has more than doubled in the past five years (including the “off-balance sheet” debts of Fannie Mae and Freddie Mac) with interest rates held at all-time lows via cancerous “ZIRP” and “QE” programs – let alone, “off balance sheet” money printing like the swap programs the Fed openly admits to, per the below “minutes” of the April 30th FOMC meeting.

By unanimous vote, the Committee agreed to renew the dollar and foreign currency liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

Federal, April 29-30, 2014

When propagandists are in charge everything is spun into the fraudulent fabric of “recovery” – such as purporting a “housing recovery,” despite the fact prices are falling, inventories surging, mortgage applications at a 20-year low, household savings and equity at or near all-time lows, and even the nation’s largest benefactor of the Fed-generated “echo bubble” loudly disputing it.

BlackRock’s Chief Executive Officer Laurence Fink said the U.S. housing market is “structurally more unsound” today than before the financial crisis because it depends more on government-backed mortgage companies like Fannie Mae and Freddie Mac.

-Bloomberg, May 20, 2014

This morning we’ve started the day with an “unexpected” negative reading of the Chicago Fed National Activity Index, a manufacturing PMI report featuring the weakest employment component of the year, existing home sales depicting the worst first trimester of the year since 2007, and a far higher than expected weekly jobless claims number; although, regarding the latter, if you read this brilliant article, you’ll realize “weekly jobless claims” improvements are in fact a fallacy with essentially no translation to the actual labor market.  Then again, the aforementioned statistics regarding Labor Participation and median income – let alone, the composition of such jobs currently focused on the temp, part-time, and minimum wage sectors – scream this loud and clear.  And for the coup de grace, here’s a statement from Best Buy the world’s largest consumer electronics retailer.

As we look forward to the second and third quarters, we are expecting to see ongoing industry-wide sales declines in many of the consumer electronics categories in which we compete.  Consequently, absent any major product launches, we are expecting comparable sales to be negative in the low-single digits in both quarters.    

-24/7 Wall St, May 22, 2014

Which brings us to the third installment of this week’s “comfort series” i.e., “the most foolish report ever written,” so named in honor of yesterday’s “Fed Minutes” – which for the first time ever, I read fully.

Yes, I know it’s all about propaganda – in convincing the “market” the Fed’s misinformation scheme regarding “recovery” and “tapering” is in fact true.  As noted yesterday morning, such publications have become unrelenting “key attack events”; and yesterday was no different, as the PPT goosed stocks, the Fed “supported” Treasury yields, and PMs were attacked.  That said, I figured I’d actually read one of these reports to see what it is they actually do at these meetings; that is, before crafting said propaganda and organizing the accompanying market manipulations.

The propagandized “headline” was “meeting participants discussed issues associated with the eventual normalization of the stance and conduct of monetary policy.”  However, it notes that “decisions about the pace (of tightening) remain contingent on the outlook for the labor market and inflation…” and…

The Committee anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time warrant keeping the federal funds rate below levels the Committee views as normal in the longer run.

-FX Beat, May 21, 2014

And oh yeah, “the Committee’s discussion of this topic was undertaken as part of prudent planning, and did not imply normalization would necessarily begin sometime soon.”

And thus, despite MSM headlines blaring propaganda like “Fed begins policy exit talks,” the Fed made absolutely no change to its economic forecast, policy stance, or view of the risk factors or timing involved in making such decisions.  Frankly, by undertaking such “prudent planning” – though useless as an “exit strategy” can NEVER be implemented – they were simply doing their job.  Not to mention, with 73 people in the room and a world full of people watching their every move!

Frankly, reading the commentary behind the decision is like reading a bad science fiction article.  To wit, a “staff presentation outlined several approaches to raising short-term rates when it becomes appropriate to do so, and to control the level of short-term interest rates once they are above the effective lower bound, during a period when the Federal Reserve will have a very large balance sheet.”  Translation – “We killed hours theorizing how to manipulate markets once rates are no longer zero realizing that with a nearly $5 trillion bond portfolio – held on massive leverage – even the slightest rate increase will bankrupt us.”

Better yet, how about this one – written by people lauded as the nation’s top economic minds?

U.S. consumer prices…rose at a slow rate in the first quarter…and were about 1% higher than a year earlier.  Many participants saw the recent behavior of food, energy, shelter, and import prices as consistent with a stabilization in inflation, and judged that the transitory factors that had reduced inflation, such as declines in administered prices for medical services, were fading.  Most participants expected inflation to return to 2% within the next few years.

-FX Beat, May 21, 2014

So let’s see here, with the U.S. Foodstuffs Index up 23% in the first quarter alone, gasoline prices up 5%, home rents at an all-time high (care of the Fed-created Wall Street engendered “buy to rent” boom), and the Shadow Stats alternate inflation index up 9%, we’re told inflation was up just 1%.  Better yet, the “behavior” of said food, energy, and shelter prices was “consistent with a stabilization of inflation.”  And best of all, the “decline in administered prices for medical services” – which I certainly didn’t experience at the doctor’s office – is reversing.  And thus, it is truly frightening that “most participants” anticipate price inflation “returning to 2% within the next few years” – as if anyone has a clue what the world will be like in two years, let alone an institution with the world’s worst predictive track record.

Next up, “the unemployment rate stayed at 6.7% in March, but both the labor force participation rate and employment-to-population ratio increased slightly.  The rate of long-duration unemployment declined somewhat, but the share of workers employed part-time for economic reasons moved up; and both of these measures were still well above their pre-recession levels.”

First off, the fact that labor force participation and employment-to-population “increased slightly” is misleading, considering both “increased slightly” from multi-month lows.  And oh yeah, just one week after this report, both measures plunged to new lows in the April NFP report!  As for “the share of workers employed part-time for economic reasons moved up,” I’ll let you decide what this mumbo-jumbo means, as frankly, I haven’t a clue.  And for the coup de grace, “both of these measures were still above their pre-recession levels.”  Translation – “We continue to propagandize recovery from the 2008 crisis despite the fact that unemployment is significantly higher than before the crisis began!

And speaking of coup de graces, my all-time favorite pearl of Central banking wisdom –

Federal Reserve communications garnered significant attention from market participants over the period.  The communications following the conclusion of the March FOMC meeting were interpreted as somewhat less accommodative than expected.  However, subsequent communications – including the release of the minutes of the March FOMC meeting – appeared to mostly reverse the earlier change in expectations.

-Federal, April 29-30, 2014

In other words, an organization whose primary goal is price stabilization (whilst destroying 98% of the dollar’s value throughout its existence), which unilaterally changed this mandate to the paradoxical goals of price stabilization and full employment spends a great deal of time worrying about the stock market.  In fact, the statement actually spoke of the Fed watching biotech and social media stocks specifically as if the price of Twitter was integral to their decision.  And by the way, the “reason” the March meeting communication was subsequently seen as more “dovish” was because a fearful Whirlybird Janet gave a speech saying so just a week later!

There’s so much more of this foolish report– such as their newfound obsession with the record low market volatility they have created through stock, bond, currency, commodity, and Precious Metal intervention.  But instead, I’ll simply summarize by stating that in reading the FOMC “minutes” of the April 30th meeting, I gained a new understanding of just how thin a tightrope TPTB are treading on.  Such drivel exposes them as just as clueless as they are ineffective; and thus, our view that the Fed’s remaining credibility is on the verge of permanent collapse has only been strengthened.

Frankly, how anyone can avoid considering how their finances might look when this inevitable realization occurs is beyond me but fortunately, there’s still time to make such decisions.  And if you do, we hope you’ll give Miles Franklin a chance to earn your business!

Courtesy of

Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.
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