Market and employment statistics doubtful, the devil in the details, worries center on Greece, bankers pondering more crashes, Spanish banking system in worries, only a matter of time before we see the economic house of cards for what it really is.
You've heard of the dead cat bounce. How about the dying cat bounce?
This is essentially what happened on Thursday afternoon, with the Dow up 1.24% on the day, the S&P up 1.08% and the energy sector in particular up 1.7%. As of press time on Friday, European markets were also up across the board, from the DAX up 0.5% to the CAC up 0.7% and the FTSE up 0.4%. Were the markets responding to positive manufacturing numbers? Nope. Hopeful employment statistics? Uh-uh. A new agreement that satisfies all parties at the Eurozone table? Fat chance. No, markets were pricing in the funny money that central banks across the globe have promised to flood the system with in the event of the next stage of the Euro collapse.
That's right, just like a junkie responding to the promise of his next hit, the markets are perking up at the prospect of the billions in liquidity that will be injected into the system if and when Greek voters decide to tell the EU and IMF where to stick their bailout agreement and its austerity conditions. This is yet another demonstration of the elementary concept of inflation, with the markets merely pricing in the likely consequences of fresh streams of hot-off-the-press central bank funds finding its way into the stock market. More money chasing the same amount of goods means that money is worth less, and the price of everything, stocks included, will go up. But since the public has been taught to see the markets in simplistic terms (green means healthy economy, red means economic trouble), the bought-and-paid-for talking heads in the financial press will spin this as a positive sign that the Eurozone crisis is “stabilizing” and that the markets are reflecting investor “positivity” about the G20's ability to meet whatever problems are on the horizon.
As always, the real devil is in the details. The uptick comes on the heels of news that country after country is already planning for the Eupocalypse: the BOE has promised 100 billions pounds for the British banking system; Bernanke has made comments suggesting Operation Twist may be extended at the Fed's meeting next week or QE3 may finally begin in earnest (as this publication has been predicting for months); the BOJ is set to keep its monetary policy unchanged, but have their 40 trillion yen asset-buying scheme up their sleeve, a program they can expand if an injection of liquidity is needed. An anonymous G20 official has now been quoted as saying that central bankers around the world are preparing for coordinated actions in the event of a crash.
The worries center on Greece, which sees its much-anticipated election take place this Sunday. The political and banking establishment are terrified that Alexis Tsipras and his hard left Syriza party will break the political deadlock in the wake of May's indecisive election and take charge of the Greek parliament. Syriza has promised to put a halt to EU/IMF-mandated austerity programs if it gets into office, and the specter of a Greek pullout from the Euro has been raised. This is anathema to the Brussels Eurocrats who realize its getting harder to paint their EU pipe dream as the land of milk and honey they so desperately want people to believe it is. This is also, of course, the perfectly predictable result of throwing together dozens of historically distinct economies, peoples and cultures in a haphazard union without so much as giving them a vote on the matter. You cannot tie sinking ships like Greece, Italy and Ireland to the S.S. Germany and hope that the whole mess will stay afloat forever. Instead, in the memorable words of UKIP MEP Nigel Farage, “the Euro titanic has now hit the iceberg and sadly there simply aren't enough lifeboats.”
But the Grexit is itself being complicated by the Spailout. After weeks of ineffectual, blatantly false reassurances that Spain wouldn't need a bailout at all, the Spanish government went cap-in-hand to the EU mafia to muster up 100 billion Euros to shore up its banking system. The problem? That's not nearly enough, and everyone knows it. The Spanish banking system is in dire straits and will require closer to 400 billion Euros to prevent collapse, and the 100 billio stopgap measure isn't fooling anyone, least of all investors. So after a dead cat bounce that lasted literally a few hours after the bailout announcement, markets plunged once again last Monday. The other problem? Unlike Greece, Ireland, or other economies on the financial periphery of the Eurozone economy, Spain cannot fail. If Spain defaulted or suffered a banking sector collapse, it is large enough to take the rest of Europe with it. The other other problem? The bailouts do nothing to solve the underlying problem. As Spain cracks the 7% barrier for its 10 year treasuries, all the 100 billion Euro recapitalization does is shift the burden from the banks to the government, and, ultimately, puts the people on the line for the sins of the banksters (where have we heard that before?). The other other other problem? The Spanish bailout came with no austerity strings attached, giving the Greeks even further leverage to renegotiate their own bailout.
None of this makes the Grexit a foregone conclusion, though. The latest news as of press time is that Greek bank stocks are soaring ahead of Sunday's election. This means one of three things: investors are trading on secret polls (Greek law prevents the publishing of poll outcomes ahead of the election) showing the pro-bailout centrists in the lead; investors are running a pump and dump on the markets, trying to convince others that the centrists are in the lead so they can dump at the market top ahead of a Syriza win; or investors are trying to convince the markets (and the public) that the centrists will win as a way of swaying voter sentiment ahead of the election. Given the efficacy of the centrist parties in recent weeks in playing on public jitters about exiting the Euro, it seems most likely that some centrist faction or coalition willing to play ball with Berlin will come to power, but no matter what government is formed, Greece will continue to be a basket case for the foreseeable future. Another summer of rage on the streets of Athens is a distinct possibility.
Meanwhile the French are back to the polls this weekend as well, this time for their second round of voting in the parliamentary elections. Given first round results, the possibility of the Socialists taking an absolute majority is still on the table, and a Socialist-Green coalition majority is almost certain, barring some major upset. This sets up newly-elected President Hollande to be in one of the strongest positions of any of the European leaders, and confirms the right turn that Europe appears to be making from Eurocratic austerity to Eurocratic Keynesianism. As we pointed out before, the same EU agenda underlies both mindsets, so the prospect of jointly-issued Eurobonds for infrastructure projects or greater powers for the EU bailout mechanism cannot be seen as a true threat to the system. Quite the contrary. The Eurocrats and banksters are set to win either way.
Meanwhile in the US, Obama has been raked over the coals for his observation that the private sector is “doing fine,” and rightfully so. Despite clarifications and backpedalling after the fact, Americans know that the Teleprompter-in-Chief has no understanding of the economy, and wouldn't understand it even if he had the relevant statistics at his disposal, which he doesn't. Official unemployment is at 8.2%; actual unemployment is over 22%. Official CPI is 1.7%; actual CPI is over 5%. The books are cooked and the political puppets are just there as window dressing for these pie in the sky fairy tales.
Of course, this being an election cycle the Romney campaign is making political hay out of the gaffe. The attack ads are already running asking how Obama can fix the economy if he doesn't understand that it's broken. As a political move, this type of campaigning is a no-brainer for Romney. Running against an incumbent who has slouched through three and a half years of a limping economy, and coming from a background of finance capital, Romney knows which side his bread is buttered on and in many ways the election is his to lose. After all, it was alleged he was the celebrity guest at this year's Bilderberg conference in Chantilly, Virginia this month, just as Obama and Clinton were alleged to have attended the 2008 conference right before Obama sewed up the nomination and then the election. Whether Romney's reported attendance at this year's conference is a guarantee of his election victory is very much up in the air at this point, but leaks from the meeting suggest Obama has not impressed the group and preparations are being made to switch horses in mid stream. Ominously for Obama, Bilderberg attendee and Wall Street Journal columnist Peggy Noonan's very first post-Bilderberg column was about how Obama's administration has turned into a “house of cards” and began airing the political dirty laundry about “national security leaks” that has come to dominate headlines this past week. Every indication is that Romney is being set up to win the election this fall.
Readers of this column will hardly need to be told that this political theater means very little in the broader scheme of things, anyway. The differences between Romney and Obama on domestic policy are nominal; on foreign policy virtually nil. Both are riding on the wave of nearly a billion dollars in campaign funds garnered not from real people but from their Wall Street paymasters. Neither would deviate from the normative policies of the two-headed/one-minded Republicrat party as it has been laid out over the past four decades. At this stage of the global economic crisis, switching from Obama to Romney is every bit as significant as rearranging the deck chairs on the Titanic. The only difference is that this election, virtually none of the public will fall for any amount of hope or change rhetoric, however passionately it is read from a teleprompter. And when the dying cat stops bouncing, and the inflation starts to kick in, more people than ever will be able to see the economic house of cards for what it really is.
It was with exceptionally heavy hearts that we learned earlier this week of the passing of Robert John Chapman, the publisher and author of The International Forecaster.
Although in recent years he has come to be best known as the publisher of the Forecaster, throughout his life he wore many hats: U.S. Army Counterintelligence officer in post-war Europe, stockbroker, economic and financial analyst, writer, publisher and owner of The Gary Allen Report, and, perhaps most importantly, loving husband and beloved father and grandfather. The success which Bob met in his professional life, retiring as the world's largest silver and gold stockbroker in 1988, was a reflection of those skills and talents which served him well in all aspects of his life: his quick wit and sharp intelligence: his curiosity, humility and empathy; and that enthusiasm and devotion to his work which drove him to spend his retirement waking up before the crack of dawn each morning so he could get a jump on the markets, giving radio interviews, writing his newsletter, and responding personally to each email he received.
Certainly for all of these reasons, Bob will be sorely missed by all of those family, friends, readers, listeners, and fans around the world who have grown so used to his commentary on all the latest news that it is only beginning to dawn what a loss we are facing. I cannot presume to state which of those categories I would fall in, having been a fan, a listener and a reader of Bob before having the privilege of interviewing him on The Corbett Report in the final years of his life, but in whatever role Bob played in my own life, the loss is acute.