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Saturday October 25th 2014

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When Credibility Is Lost

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I’ve spoken of “credibility” quite a bit lately and hopefully won’t bore you with this but “credibility” has been lost in all the wrong places.  Shortly I will get to exactly where we’ve lost it but I want to go over again why “credibility” is so important in so many ways.  First, if you don’t trust someone for whatever reason, will you do business with them?  If you are currently doing business with someone and lose “trust” in them, will you continue to do business with them?  Generally the answer is no and in this case with the U.S. it means less commerce, less flow, and as the Chinese and Russians have just displayed…less use or need for dollars.  The loss of “trust” is happening at the wrong time for the U.S. No time is the “right time” but we have our backs up against the wall in the credit markets and no one wants to buy our Treasury bonds.  “Credibility” is the only reason that our creditors lent to us in the first place and why they have accepted “dollars” all these years.  Losing credibility will have a direct effect on the dollar and more importantly its purchasing power.

So where have we lost credibility?  At this point, maybe a better question would be “where do we still have any credibility left?” as the list would be far shorter.  I guess I’ll start with the most recent episode of the Fed conning the market with “no taper.”  Fed presidents and governors “hinted” for so long that we’d get a September announcement of QE reduction.  President Obama even came right out in public at the G-20 meeting and said as much…but, it didn’t happen.  As I’ve said before, it didn’t happen because they cannot slow the monetization process one bit or the financial markets will collapse…on the other hand they HAVE to slow it because they are becoming too big of a player and soaking up too much precious collateral from the markets.  In a nutshell, for 6 months or more the Fed has “bagged” and conned the markets with this. Only a day after the fact there are already Fed governors out there again telling us about an October or December taper.

Next up to the plate are the hilarious budget and debt ceiling negotiations, these ought to be a spectacle.  We have not had a budget passed for 4 or 5 years…what kind of way is this to run a country?  Not just any country minds you, THE country that issues THE reserve currency for the rest of the world.  Let me put this in simple perspective, would you hire a roofer whose roof leaks, a cobbler with holes in his own shoes or an accountant on his way to jail for tax evasion?  Of course not…but we have become so accustomed to the world accepting dollars that we believe it to be some sort of God ordained right when in fact it came about in the first place because we had a huge gold horde, a great business reputation, the best and fairest judicial system, the world’s most solid economy which was all backed up by the strongest military in the world (what could possibly go wrong?).  My point is this; we were “awarded” as the issuer of the reserve currency because we deserved it, now we look like falling down fiscal drunks who don’t know our way home.  No budget, $1 trillion deficits, an insolvent Central Bank, bogus financial and economic numbers and…(Sorry Obama supporters) a president that said in public “raising the debt ceiling doesn’t increase our debt.”

Moving along, (again I apologize to those who drank the Kool Aid beforehand) we as a nation have had scandal after scandal that outwardly puts us in a piss poor light as far as the rest of the world is concerned.  A couple of the scandals, NSA/Snowden and SWIFT directly affect foreigners as they believe (now know) that even they have been spied on.  We have had so many scandals and things “that just don’t smell right” that any foreigner who isn’t on the floor laughing at us would surely not be getting their checkbook out to purchase either treasuries or dollars.  We also lost significant credibility over Syria.  Yes I am sure that the world breathed a collective sigh of relief but left solely up to the current administration, Syria would still be smoldering.  We went into Iraq and created a disaster based on lies as the world watched helplessly, Syria as it turns out is a different story because other than Israel (and no longer even France) we have NO COALITION at all.

All one needs to do is listen to what the fools in Washington have to say to understand that “we” as Americans have intellectually lost it.  From Hillary’s “what difference does it make” to Kerry’s “red line” to Obama’s (nearly anything that he says with or WITHOUT a teleprompter) it’s all dis in genuine and not believable.  I am not just picking on Democrats here, McCain and Lindsey Graham were (are) ready to blow the world up at the drop of a hat so the Democrats haven’t cornered the market on lying and stupidity.

Have I covered all of the bases?  No, surely not as I’ve only scratched the surface here.  We have a central bank’s monetary policy, fiscal policy, Executive branch, Congress, regulatory agencies, reporting agencies for economic and financial numbers…that continue to damage and destroy “credibility” that took over 200 years to attain.  This hasn’t happened overnight but the erosion is now on a fast track.  Everywhere that you look “we” (America) are doing the wrong thing or “wronging” someone, somewhere.  Business “can” and in fact used to be done in a manner where both parties benefitted, this is hardly the case now as the U.S. doesn’t produce anything much other than “dollars” for export.  We are now at the mercy of foreigners, of our creditors…to retain our current bloated standard of living.  This will not last and the change will be drastic.

Before finishing I do want to mention the “action” after the FOMC meeting on Wednesday. First, the news was obviously leaked and there was front running in the gold market.  Though this is illegal it should be well known that information is leaked all over the place and the markets are not fair…but this is not what I want to talk about.  “Speed” is the topic.  If you look at any charts from immediately after the announcement you will see that the huge moves in just about everything you can name ALL took place in 5 minutes or less.  Yes, in just 5 minutes, 95% of the moves were made and completed.  Basically, if you blinked you missed it entirely.  This creates both opportunity and danger.  As you know by now, I am a believer that a “reset” will occur.  Leading up to any reset I believe we will see “gaps” in everything in different directions.  “Gaps” as in big price movements with little or zero trading taking place.  Gaps are down in Treasuries, gaps both up and down in stocks and gaps up in most commodities and the precious metals.  These “gaps” will in part be caused by fundamentals beginning to take over but also because of leaked information regarding any future reset.  The “opportunity” is that if you are positioned correctly the market action may be so swift that it won’t allow you to make an error by selling.  On the other hand, the “danger” is that if you are not positioned correctly ahead of time…you never will and you’ll not be given a chance to correct your error…

The Fed blundered big time on Wednesday and tossed much of their remaining credibility overboard by contradicting their own “recovery” story.  I plan to write tomorrow regarding the next probable target of “evil speculators”…The Fed itself.

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