Wicked Game: Villainy Knows No Bounds in This Fed-Controlled Market

I call it the Teflon market: absolutely no bad news ever sticks. Each and every development, no matter how dire, is merely a setup for higher equities prices and melt-up mania as gravity becomes a non-factor in the modern marketplace.

In case you needed further proof that this market is neither normal nor natural, the unbelievable market recovery I’m seeing right now is pretty well damning. A couple of Trump tweets from last night should easily have been enough to undo days or even weeks of market euphoria.

In case you missed it, President Trump started out with a recap of the progress made so far in U.S.-China trade negotiations: “For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods.”

Then came the hammer: “The 10% will go up to 25% on Friday. 325 Billions Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

Heretofore, all it took was a hint of progress in the trade negotiations and the stock market would jump for joy – but what goes up must come down, right? Wrong! With the Federal Reserve declaring that there will be no interest rate hikes for the rest of the year at least, and the government announcing 3.2 percent GDP growth and 3.6 percent unemployment, investors have been forcibly herded into the equities markets like cattle.

To borrow a phrase from Jane Austen, there’s little “sense and sensibility” in a stock market that can’t even stay down for a full trading day after the President renews trade war threats:

Courtesy: Yahoo Finance

There was no catalyst for this stunning recovery: no retraction from the President, no concessions from Xi Jinping, no spectacular earnings reports or economic data… nothing to precipitate the intraday bidding frenzy except for the ever-present T.I.N.A.: There Is No Alternative to buying stocks.

The 10-year Treasury note yield, meanwhile, was pushed back below 2.5 percent; I can’t imagine it will be much longer before real yields (i.e., the bond’s yield minus the rate of inflation) turn negative, making “risk-free” government debt assets the riskiest investment of all.

If that sounds improbable, keep in mind that central banks in Japan, Sweden, Denmark, and Switzerland are already experimenting with interest rates that are negative even before the inflation rate is factored in:

Courtesy: GoldMoney.com

To quote Norm Franz, “Silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.” You can replace “gold” for “silver” in that quote and it’s equally true; and today, with $10 trillion of government debt in the form of negative-yielding bonds circulating today, slavery is tragically alive and well.

The Teflon market might feel good for a while, but like any other crime, there are sure to be consequences down the road – not necessarily in the form of the perpetrators getting caught and serving time, but at least in terms of a reckoning for the central bank-sponsored regime that enables this legalized Ponzi scheme.

Billionaire investor Ray Dalio once predicted that “if inflation-adjusted interest rates decline in a given country, its currency is likely to decline.” I think Dalio’s being charitable in his assessment: the currency will suffer, yes, but there’s much more at stake as the economy teeters and governments run short on ammo and excuses – and integrity, assuming it existed in the first place.