International Forecaster Weekly

5 Truths About the Economy the MSM Has Been Forced to Admit

The truth is a beach ball. You can spin it, distort it, ignore it, or push it under the water. But it has a way of popping back up.

James Corbett | April 4, 2016

The truth is a beach ball. You can spin it, distort it, try to knock it out of the way or shove it under the water but it will always pop back up. That's why the talking heads of the MSM generally just try to ignore it. But it's there. It persists. It makes itself known.

Today let's look at five recent examples of how the MSM had to admit the truth about this phoney-baloney fantasyland economy.

1) The Fed caused 93% of the rise in stocks since Lehman

The extraordinary 7 year bull run in the Dow and S&P (complete with the best quarterly comeback since 1933) is a central bank created bubble that rests on no actual economic fundamentals.

Don't feign shock. I know you already know this, if for no other reason than that I have talked about it over and over and over since the very beginning of the Lehman crisis.

In fact, as I noted in a previous article:

This point is not even controversial. It has been the universal consensus of institutions ranging from the Bank for International Settlements to the Official Monetary and Financial Institutions Forum, and from OECD officials to former Fed Governors and even Alan “Bubbles” Greenspan himself.

In fact, analyst after analyst and pundit after pundit–including the most mainstream of mainstream publications–have been sounding the alarm on the stock market bubble for much of the past year.

Well, add one more admission to that list. And this time it's quantified. Yahoo Finance just published an article admitting that fully 93% of the gains in the stock market during this bull run are directly attributable to the Fed's interventions in the market.

Now to be fair, there is no modern era in which the markets have not been driven by hope and change of some sort or another. In fact, the economist behind this latest analysis--Brian Barnier of identified the main drivers of equity market growth going back to 1950, and none of those drivers is "increased productivity" or "growing economic activity."

Still, that the Fed has driven more than 9/10ths of the recent stock growth is a phenomenal thing for the MSM to so blithely admit. They are the ones, after all, who generally tend to focus on the stock indexes as a bellweather of the economy. So it only stands to reason that if the stock bubble of the last decade has all been a central bank generated mirage, then the economic "recovery" itself is a mirage, right?

"But it's not just equities!" the savvy reader will say. "What about the commodities rally?"

Funny you should mention that, actually, because the MSM also just admitted that...

2) The commodities rally is based on nothing and will soon collapse

Everyone knows that oil prices began plunging in 2014 and have only recently pulled out of the tailspin. But the oil rout was only one part of a greater commodity rout that has happened in lockstep with the global slowdown in trade in recent years. This great commodity plunge has taken its toll on everything from potash to copper to iron ore to mining stocks to banks to the economies of resource-exporting nations like Australia, Canada and Brazil.

But never fear! A commodities rally is here! Or at least that's what the likes of coked-up nutball Jim Cramer is trying to tell his audience. As with so many things that Cramer and his ilk are saying, however, he's techncially correct while completely missing the point.

From the last week in February until mid-March the Dow Jones Commodity Index was showing significant improvement. But not even the economic cheerleaders of the MSM could champion this rally. As article after article after article after article after article has noted in recent weeks, this commodity rally is not to be believed.

The latest pronouncement comes from no less an "authority" than the vampire squid itself, Goldman Sachs. The global kleptocrats at bankster central are urging caution against the perceived commodity boom, saying gold and iron ore are on their way back down and copper and aluminum could plunge by as much as 20% by the end of the year.

The problem? This "rally" is an illusion caused by weakening in the dollar since Yellen's "we can't raise rates this year" admission at the March FOMC meeting. Since commodities are generally priced in dollars, a weakening dollar balloons commodity prices and a strengthening dollar has the opposite effect. This relationship bore out when some Fed officials talked about going ahead with the planned rate hike schedule this year and the dollar started to stiffen again. Commodities dutifully began to flag.

But what about oil? Oil is its own beast, right? And surely this oil rally is here to stay, regardless of the ups and downs in the dollar...

3) The oil rally is completely due to a record short squeeze

Oil prices have risen 50% since February 11th. Oil companies and investors must be leaping for joy at that little factoid, right?

Well, maybe not. Once again a little digging beneath the surface shows that this rally is not based on any underlying fundamentals (do you see a recurring theme here?). There is still a glut of supply and newly de-sanctioned Iran is threatening to make it worse.

Oh, yes, they'll throw out the usual canards. There's a production freeze coming. Honest. (We really mean it this time!) The summer driving season is almost upon us! Your weekend camping trips will single-handedly drive the price of oil!

But these lies are not to be believed. The actual reason that oil has rallied is even more depressing in terms of what it reveals about the state of the global economy. As Bloomberg was forced to admit in a report earlier this week:

Oil enthusiasts haven’t been jumping on board the latest rally. As crude has soared more than 50 percent since Feb. 11, the number of bets on increased prices has barely budged. Instead, the upward pressure on prices appears to have come from traders cashing out of bearish wagers at an unprecedented pace. The liquidation of short positions during the last seven weeks covered by data from the U.S. Commodity Futures Trading Commission was the largest on record.

So in plain English the dramatic jump in oil prices has nothing to do with supply and demand and everything to do with the largest short squeeze in history. Too many people crowded into the short trade and rode the bear a little too far down the slope. When it started to turn they all cashed out of their positions, boosting the oil price. But this is not a bet that things are going up from here. The shorts aren't turning long, they're just cashing out.

So, like everything else in this phoney baloney economy, the oil rally has just been speculators trying to cover their posteriors when their trade started going south. Speaking of which...

4) The Fed rate hike schedule is nonsense

Once again, this will not be a surprise to followers of the alt media, where the consensus was always that the Fed's rate hike theater was in actuality a one-and-done proposition. But still, it's always good to see that the talking heads are using the mainstream airwaves to let the tv-watching masses know that the Fed rate hike schedule is "a bunch of nonsense."

And it's not just Peter Schiff saying this (although he does feature in the article). Even Citigroup economist William Lee is acknowledging that the Fed is simply accommodating the markets (i.e. institutional investors and bankers) at this point...precisely what critics have been saying throughout the era of QE insanity.

The simple fact is that the Fed can't raise rates without sending the dollar up and precipitating another round of commodities/oil crash, not to mention the great emerging markets unwind and the likely seizure of global trade. So what is a central banker to do? Why, use your magic words to temper market expectations, of course. Make them think you're going to tighten, and then don't tighten; it'll amount to the same thing as easing, right?

Well, maybe for a brief window. But once the markets catch on, things will continue as before; namely, with markets anticipating that every piece of bad news will be "good" for the prospects of further easing, and vice versa. In other words, the topsy-turvy black-is-white helter-skelter "new normal" universe I've been documenting here for years now.

So what happens when the Fed is forced to acknowledge that the US is actually in recession? Will we go back to zero interest rates? Or maybe go negative?...

Oh, wait, you didn't know the US was in recession?

5) Anyone who denies the US is in recession is "peddling fiction"

Once again one can turn to the Peter Schiff's of the world for the bold proclamations about the economy: "The real problem is the U.S. economy," he told CNBC this week. "The economy already is in recession. The question is, when is the Fed going to acknowledge it?"

As a matter of fact, the Fed already has acknowledged it. Or, to be more precise, a respondent to the Dallas Fed's latest manufacturing survey has acknowledged it. There, buried amidst a pile of less dramatic (but not especially optimistic) responses, comes this stark appraisal of the market from a machinery manufacturer:

As a long-lead-time capital equipment manufacturer, we are working off backlog. Anyone who says the economy is not in recession is peddling fiction.

This comes a month after a similarly blunt assessment from a respondent to the same Dallas Fed survey:

"We are in a recession. Oil prices are a symptom, not the cause."

To be fair, these are not scientific assessments so much as the anecdotal experiences of those in an industry being hit hard by the bottoming out of the oil market. But it does reflect the pain that's being felt across wide swathes of the manufacturing sector, pain that is finally being acknowledged in the mainstream press.

In recent weeks there have been a flood of articles pondering whether the US economy is heading back into recession:

"Is the US economy running out of gas?" asks CNBC.

"Next U.S. recession may not be a biggie but could be a long one," says The Chicago Tribune in a headline that is less reassuring than intended.

US News takes it one step further: "Is the Economy About to Collapse?"

And this about sums it up: even the MSM is having trouble cheerleading these markets. Just look at the chart showing the share of GDP that is finding its way down to workers in wages and salary. Just look at it. Workers are earning less and less of the overall pie even as corporate profits continue to inflate. No one with a shred of integrity can deny this anymore. Heck, even the well-coiffed talking heads of the mouthpiece media can't deny it anymore.

The truth is a beach ball. You can spin it, distort it, ignore it, or push it under the water. But it has a way of popping back up.