The Smart Bird – He Knew

I thought you might get a chuckle out of this. Before the Federal Reserve Chairman was the chairman, he got to foretell everything that is happening as seen in these FOMC meeting minutes from 2012. My takeaways come later.

Now Chairman Powell was concerned about all money creation out-of-thin-air to buy financial assets (bonds) at the time. He explained what would happen, did happen and is happening. So yes, he knew. He knows. But now he has to make up false statements because the Fed is not allowed to admit fault – ever.

Takeaways from our Fed Chairman back when he spoke the truth:

  1. Economic models are designed to justify decisions because the bad models inform their decisions
  2. Since economy never picked up, they could keep running with financial stimulus
  3. The Fed’s primary goal was to prop the financial markets up (“prevent serious losses”) when the free market tried to reset
  4. The Fed’s strategy was to blow a fixed-income (bond) bubble but he knew it would pop if interest rates ever went up – he tried to raise them very slowly & pop
  5. No way to exit the ponzi strategy without causing another financial crisis but ponzi schemes also have a day of reckoning
  6. By purposely shorting volatility to cause the bubble and when we have to cover the shorts – look out below (check).

Yep, he was right. So this means…

The Fed’s number one goal today is to keep the financial and monetary system from totally breaking down ($3 trillion in 2 months should tell you something folks). Here is what they will do:

  1. Keep using the economy as an excuse to bailout the corrupted financial system again – this is easy today.
  2. Financial bailouts will not help the economy, so Congress will need to do something for the other 90% of the population.
  3. Continue to attempt to prop up the market with policies like “total yield control” which will require copious printing
  4. Never raise interest rates, but avoid negative rates since this will also destroy the global financial system
  5. Figure out what to do when savers run out of money to transfer to speculators via interest rate suppression – first choice, print; second choice, there is not other choice.
  6. Prepare to support hedge funds in buying up all the foreclosures with basically free money like last time, but much, much more this time.
  7. Bring back debtor’s prisons… okay I am getting ahead of myself on this one.

Seriously, what does it mean to investing:

I’ve said for a long time that the Fed’s interventions have to get larger and larger with each round. And either the financial system would break under the weight of debt or there would be a political intervention to stop the monetary madness.

The financial system is now broke, the interventions can not get big enough without a major political realignment in America in the coming years. The last yellow wave just filled with $3 trillion in 2 months.

Where did the credit flow this time. Note: we are only half way through the year and they doubled the debt flow into the over-indebted corporate world. How? The Fed is now buying corporate bonds (illegally) which unfroze the markets for awhile.

We are in a hostile investing environment with poor long-term support (future cash flow) for the current prices in the markets. The stock market is simply riding the Fed’s largest intervention in history. And every wave ends the same unless over taken by a larger wave… and they don’t get larger than this one without destroying the currency and many liquidity surfers.

It’s going to keep getting more interesting. That wave is going to hit the no cash flow corporate rocks.

Invest safe,

Michael Bond

TSP & Vanguard Smart Investor serves serious and reluctant investors

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Categories: Perspectives, The Smart Bird