WTF: What The Fed?!?

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Here at the start of 2020, we’ve just said good-bye to the "twenty-teens, a decade defined by central bank intervention.

Since the the Great Financial Crisis that began in late 2008, the world’s central banking cartel has increased the global money supply by a net total of roughly $14 trillion – often handing off the money-printing baton to one another over the years.

And despite being in “recovery” for the past ten years, the majority of the world’s central banks are back shoving liquidity into the system once again.

So, where has all this intervention gotten us?

Many would say to the peak of the biggest asset price bubble ever blown in history.

  • Total US Market Cap is trading at 153% of GDP -- the highest ever
  • The top 1% owns nearly half of the world's wealth (the 500 richest own $6 trillion!)
  • The bottom 60% of the world's adults have less than $10k/household
How did we get here?

How will these extreme imbalances resolve themselves?

Last week, Mike Maloney, Grant Williams, Charles Hugh Smith, Chris and I all convened to tackle exactly these questions.

Back in 2018, each one of us was ringing a bell warning of a massive asset price bubble. 2019, however, only saw prices further shoot the moon (S&P up 28%, Nasdaq up 35%). And ever since ‘Not-QE’ was announced by the US Fed on Oct 8th, the rate of increase has only become more manic.

Exactly WTF is going on?!?

To find out, watch this short trailer:

And then click here to watch the full 90-minute video discussion.
WATCH THE FULL VIDEO
 

This is a companion discussion topic for the original entry at https://peakprosperity.com/wtf-what-the-fed/

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Who produced the video?

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Travis -
Production of this video event is a joint effort between us and the folks at GoldSilver.com (Mike Maloney’s operation).
But the slick trailer was 100% created by the GoldSilver team. If you’ve watched Mike’s ‘Hidden Secrets of Money’ series, you already know they have an amazing video production crew. We’ve been super-excited to tap into that talent.

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Okay, just curious if you were picking up some video editing skills. I’ve dabbled enough to know those guys do a really good job.

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We had a neighbor for dinner last night, I was expostulating and my wife insisted that I become less negative. So-
My office looks out over downtown Rocket City, USA. Construction and building is exploding: across the street is a crane and 5 story new building, next to it a new downtown 278 unit apartment complex. Down the street to the left about 300 yards is another downtown office development, a 20 story building planned, and 350 new apartments. The hospital behind me has a crane too and is adding a new tower for orthopedics and offices. To the right 100 yards is a newly created apartment complex with restaurants and a new Publix grocery store. My office, built in 1974, I am sure is in the cross-hairs of “re-development” but I am 67 and can live with whatever happens.
Last Sunday night I was at my health club alone on the stair stepper and the mayor came in, who I have known for 30 years, and I congratulated him on our 216 square mile town just exploding with new development. He told me he will be running for a 4th term and things are only going to get better. He hasn’t announced all the good news yet.
My youngest son graduated from college in May. His roommate got married Dec 28th and we were invited. The family hosted a dinner/dance for 350 and 12 piece band with open bar for 6 hours. I am well-off but they are obviously richer than me.
My wife’s walking buddy’s husband worked for a privately held defense contractor that sold out for 1.6 billion dollars last week creating 2,300 new millionaires in our town. The defense budget, large as it is, has every indication that it will go up again this year, benefiting our town mightily. Can’t get enough of those drones and missile technology, not to mention network security. Do I need to go on with more “good news”?
I read Bill Greider’s “How the Federal Reserve Runs the Country” in 1985. I bought my first $1,000 face silver in 1988. I have watched distressing economic conditions in October 1987 become ludicrous in 2008 and heard George Carlin’s famous words “No one seems to notice, no one seems to care” in my head for more than a decade since.
There are four conditions that will be noticed: No money from ATMs, no gas when it is time to fill up, electricity grid failure, or internet down. And I can add that if Iran touches off a nuclear device on US soil. Will the market down 50% bring out the pitchforks? No. Because most people will have no idea why and will blame who they are told.
I appreciate your efforts to be informative. Do you think you could be wrong and though 20 centuries of stony sleep have been vexed to nightmare by a rocking cradle, it could all go on a lot longer and YOU will never see the denouement?
The Boy Scout motto is “Be prepared”. Preparation at this point is too late. It’s useful to have a little gold and a little food but there is no benefiting from the collapse of industrial civilization…
Somehow I can never talk myself into optimism despite being wrong for 35 years…

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I enter my email then click “watch now,” and then the page reloads and asks for my email again. Am I doing something wrong?

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That’s strange, Tom, and clearly isn’t the intended experience (haven’t heard a similar complaint from anyone else…yet)
Try using this link to access the full video.
cheers,
A

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Like me, you are in your mid 60’s. Doesn’t your body ache when you awake in the morning? In another 10-15 years, or sooner, are we really going to have the energy and vitality to care for our survival preparations? So, at this point, who really cares? My children don’t. My neighbors don’t. Most of America doesn’t seem to care. So, why not run with the wind while you can and enjoy what we have left?
Because, we care, I guess. Sometimes, it’s a lonely place to be.

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“embed yourself in a local economy where you can provide value…”
Charles, thank you very much for your insightful comments, which made the rest of the video tolerable. Also thanks to CM for giving real examples of action. You are so right about small villages in existing old cultures (like Japan) that are depopulating and have a great potential future. We are stupid and poor farmers, yet we are the future of the world. Young people are beginning to figure this out and it is fun to help them find themselves in these locations.
I would love to see a webinar dedicated to the important issues of local economy (including efforts to pursue your suggestions from your books) and also how small communities can develop their own energy. First of all, and more importantly, a quantitative tabular review of what energy is needed for different things, and where that can come from at the community level.
Almost no one really understands how much energy is actually expended for various simple things we do and how to prioritize things. Such would be very helpful because the “delusions that play upon humans desire for magical thinking for solutions” that Charles refers to ALSO extends to immature attempts to become energy resilient by spending gobs of money on solar panels/batteries/windmills/powerwalls etc. without paying attention to lifestyle changes and which often make the energy situation worse.
I realize the importance of “portfolio!” and “financial analysis!” and the high value of informercials such as this to help retiring and retired people who saved so much from losing it all to the bankers. But this is merely an initial step and not the main event. This is merely analogous to the mother putting the oxygen mask on herself first, before putting the mask on her child, and before assuming the crouch position for the crash. While initial efforts to preserve wealth is an important start (for those of us who have a “portfolio,”) the real important stuff is what happens afterwards.
We need webinars on community resilience and especially energy inventorying and replacement of globalist energy with local sources. It is time to go beyond “I started to stockpile some food…, I put up some solar panels and bought some batteries” and "buy gold!.. “reposition your portfolio!” Those may be good/no brainer solutions for the crash itself but and have been proclaimed and discussed ad nauseum (kind of worn out) for at least 10 years.
best regards

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it wouldn’t work on my iPhone or iPad, but it’s now running on my laptop. Whatever. ?‍♂️

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I have a lot of in-depth comments on this video, pro and con, but want to watch it several more times first.
Gut reaction: 1) MM & CM have finally gone off the deep end (joke), 2) I have never agreed more with GW & HCS about what is happening while disagreeing more about how to respond.
But one thing I can say unequivocally? Adam, you are one heck of a talented interviewer. It’s not often I want to watch something more than once.

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MKI -
Thank you very much for the kind words.
Feedback like that is an honor to hear :slight_smile:
cheers,
A

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MKI
Good point. I had the same feeling, that Adam was doing a great service for all of us in his interviewing stule.
Adam provides some great infrastructure for this blogsite and the PP effort generally. Objective advance generally and great organizations need more than scientist reporting etc. We need to respect different contributors such as Adam. This is one thing that I realize more as I get older and spend less time surrounded by scientists and engineers…

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Many people dont like this, but this is a real solution, 20 years with no maintenance, no waste, just refuel 10% more each 20 years : https://youtu.be/RPI8G6COc8g https://mutualwelfare.org/what-do-we-really-know-about-nuclear-energy/
Every community need a social pact, adapted to this new times https://e-nation.org/
Money https://unitycoin.net/

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Not only on your property purchase but also on your engagement to be married!
I’m sure I am not alone in wishing you every happiness in your new adventure.
Life is certainly a funny old thing…

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Thanks Debu!
2020 is indeed shaping up to be a great year where several years of stored energy are going to be unleashed. I love having big projects on my plate. I like building towards a future I can believe in.
The property that Evie and I are buying is a huge canvas upon which to paint. The one across the street we are actively exploring with others is also magical.
One example out of many is this.
The main property we are buying comes with - drum-roll please - a massive 10+ foot thick concrete dam on the (named) Otis Wait brook.
Micro-hydro here we come!
The dam and pond

The dam closer up

It’s really thick, as if Hoover dam workers felt bored one afternoon and put this in

Working gate controls

This is half the outflow (bad pic I took)

Overall, this is an astonishing thing to have. Better than I could have imagined. Because it’s already built it’s grandfathered in and we get to do with it pretty much as we please.
Good luck trying to get such a thing permitted these days. Probably half the cost today would be permits in MA.
So when I said “canvas” I meant working with features like this to apply my project hungry brain towards.
Yes, you can now say “Chris, that dam guy!”

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I’ve now listened to this interview 6X (good length for a workout, kudos!) and have a flood of comments. Amazing interview.
Comment #1: I am now very bored with Fed bashing! What’s the point? Even Grant Williams now whimsically agrees and is bored (as he bashes the Fed again). This illustrious panel clearly made the wrong call on how the worldwide central banks were going to respond; 14T of fresh liquidity gets results. Yes, this is bad for main street. Yes, it is good for investors. Like the rain, this is out of our control. Don’t shake your fist, wear a raincoat. Our mission, should we choose to live in the real world? Anticipate. Take action. Learn from our mistakes.
But it wasn’t rocket science to predict what happened the last decade. Hell, Bernanke himself told us the Fed would even drop cash from helicopters if QE doesn’t work. I sincerely believed him. I still do. Nobody on today’s Fed has repudiated Bernake’s approach. The only real question left? How long will the system hold together. Myself, I think it’s got more life, so am invested accordingly (hedged, of course, and as was mentioned by Grant, keeping very very close tabs on it.

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Comment #2: The big lesson I get from this decade and this discussion? The investing world has fully changed. Never save cash unless you have a plan for transitioning it it to something real, since real inflation (not the CPI BS) will eat savings faster than the Fed can say “QE”. Rather, keep wealth in as stable-as-possible assets with a yield, such as blue-chip, dividend paying stocks, or income generating real estate. Why? True inflation (what we see in housing, health care, and education) is eating us alive, and not showing up in wages. It’s a war: the old days are gone. There is no middle class anymore. Play or die.
The other option is gold (stored at home) but this is tough because without a yield and the wild fluctuation in gold vs dollars, plus the cost of transactions, plus the potential of another 1933 law, it’s not a perfect solution beyond the requite 10% of NW.

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At around 37 minutes, Chris makes an excellent point: the next Fed gambit always collapses at the weakest points first. Thus, we should, if we expect problems (which any sane person does) focus on quality and avoid shaky or over-indebted instruments.
My take: the money has to go somewhere in the end. Therefore, if you want to participate in Fed expansion in stocks? Avoid index funds and buy only select high-quality stuff (I like Dow, blue-chip, A rating dividend paying stocks) so when the hit comes, money will likey flee into the quality, driving them further up still. Look, for example, at Exxon, last I looked it was around $80, 4% yield at 95% payout, $40 book value, 25 PE, 20% debt: yes, stocks are overvalued, but this sort of thing is not a crazy FANG. It’s go real oil i the ground and is making real money. I have been buying these sorts of stocks all through the aughts, and if everything goes south, they still should do fine since everyone will flee into them over government bonds and shady FANGs.
Later in the interview, I think Grant mentioned how he likes Asian stocks due to their under-priced position compared to US. This is pretty ballsy IMO due to currency issues. Sad reality: the US is still the cleanest shirt in a very, very, very, very dirty laundry pile. Imagine Asian stocks when the US starts putting up tariffs and protecting our industries? Asia has been living off our spending and debt, and this cannot go on forever.

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Terrific interview, especially the comments on Globalisation and Financialisation from Charles Hugh Smith. What is the point of this scale and so-called efficiency if we are seduced by cheap trinkets like flatscreen TVs while exploiting the labour costs of other countries while our own health and tertiary education costs soar? This has been happening in Australia too.
Towards the end (55min), Charles talks about local communities replacing centralized market places. A lovely idea but where are these communities? They barely exist in advanced economies. Everywhere has supermarkets owned by national or transnational corporationsand and every shopping centre is filled with non-local francises. The locals get a few poorly paying retail jobs while the local economy and its self-generated wealth is strip-mined as the profits return to the urban centres.
Where I live in North Queensland, much of the infrastructure was created in the late 19th and early 20th century by the locals themselves. Almost all the civic buildings such as town halls (usually named after the local worthy), hospitals and schools, as well as infrastructure like roads and harbour facilities were created by locals. Government input was mainly to provide a police force and magistrates. Most of the wealth stayed within the community and was reinvested locally.
Not so with a modern economy. In addition much of the common wealth in advanced economies has been privatised. The government that privatises usually juices its offering by raising prices, removing regulations and doing everything to ensure that the interests competing for what once belonged to the citizens will raise a very high price. The proceeds are then usually wasted on vote buying. In one toll road privatisation in Sydney the State government even closed off roads to force drivers to use the new toll road. Nothing apparently can be spared in the sell-offs. Even the land titles offices are being sold!
I have to say that the idea that the dreadful situation that we have arrived at is entirely due to central bankers is nonsense. All of us are at fault for allowing a cloud of complacency to settle over ourselves.
The response from the financial guys seems to be that when the shit hits the fan, there will be huge opportunities to make a huge pile. That may be true and of course it will take the bravest to invest when blood is in the streets. That is the way it has always been. BUT, don’t you think it might be an idea to think outside the simple self interest loop and look at how we construct a better economy, a better financial system, a better polity.
Every recent G20 meeting the politicians seem unable to talk of anything but getting the growth figures up. Should we not be trying to figure how to live in a low growth world and how the resources are distributed and used? We do not know if a population of 7.5 billion is long term sustainable, let alone one of 10 billion.
If it is not, how do we reduce the population. All that our agricultural and energy expertise has done over the last 200 years has essentially been to grow the world population at an astonishing rate. Can we halt it or even trim it without war or disease?
Continuing along the growth path will not do that but will almost certainly at some point create a collapse as predicted by Thomas Malthus. Perhaps we have seen the last of the Four Horsemen but I doubt it when I look at collapsing ecosystems and resources that requires deeper mines and drill stems.
Is the best we can do some variation on self interest i.e. creating some kind of self-reliant bolthole stocked with provisions and a solar system for electricity? If we take that attitude then I think the advanced world is in for a very rough ride if not a complete collapse.