Economy

Once again, we find that a moment of market reality is met with an astonishing wall of liquidity, as evidenced by the past two days of gains in, well, everything.  I’ve seen this particular behavior more than a few times over the past eight years, and I’m pretty confident that I know what it is and where it originates.

On Tuesday, the market reality was the sudden realization that instead of everything getting unequivocally better, there was solid evidence of rot in the debt superstructure of much of Europe, concentrated (for the moment) in southern Europe

Well, wouldn’t you know it.  That realization only lasted a single day, as stock futures were mysteriously repaired that night, bonds remained well above their pre-mini-crisis levels, and commodities came roaring back.

One might be tempted to ask, “How is it possible that such a crisis can only last for a single trading day?”

As I write this, the Dow is down 170 points and the S&P 500 is down 23.  The dollar is up 0.89 (a big move), and (here’s the surprising note in this symphony) gold is up $8.

The explanation being trotted out by the media for this big move is the fact that S&P (the rating company) downgraded Greece and Portugal’s debt.

The terminal phase of the game that we are all currently participating in, thanks to your local central social engineering firm (er, uh, I meant central bank), happens to be sovereign debt defaults.

The only open question is whether that default happens suddenly in the form of an actual default (like Argentina in 2001) or occurs a bit more slowly via the back-door default mechanism known as inflation.

You see, the worst-kept secret out there is that it is now mathematically impossible for real debt to be repaid in current dollars, at least not through any hopeful combination of growth and tax increases that a sober person could possibly concoct.

I really thought Jim Rickards of Omnis Research did a very nice job of expressing these ideas in this recent piece (and to whom the title of this report is credited):

In the conclusion of the most recent Martenson Report on the Shell Game, I mentioned that ‘recovery’ was the most likely path forward.  Several of you asked me about that, so I will elaborate on that statement here.

It has always been my contention that our fiscal and monetary authorities were going to flood the world with liquidity – as much as necessary – to create an economic rebound.  It was never a question in my mind as to whether they would do this.  The only significant questions concerned the amplitude and durability of the recovery.  But make no mistake, trillions of dollars flooding the system have to do something and go somewhere.

Right out of the gate, because our fiscal and monetary authorities are captives of the Wall Street crowd, most of the early gains went directly to the Wall Street crowd, predictably (if not maddeningly) enough.  But now we are seeing signs that some of that largess is sneaking out into the real economy.

Let’s review the statement and the question:

I want to apologize for an error we just made with the most recent Martenson Report. The report, which I had worked on extensively as an offering for paid, enrolled members only was accidentally sent out as an email to all free registered members of the site.  Sometimes clicking the wrong box can have a big impact, and this is one of those cases.

My apology goes primarily to enrolled members: your financial support is the bread and butter that allows me to do this work and keeps our fledgling organization afloat.  It is my highest priority to be able to deliver specialized, exclusive content to you and to provide the best value I can for your monthly or yearly enrollment.   Under no circumstances would I have planned to publicly release the heavy-duty financial analysis you saw in that report.  I apologize for this mistake and will do my best to make up for it by providing new exclusive content in a timely fashion.

That said, it is not a bad thing to have this report out for wider circulation, as I believe the ideas and information contained within it are important and worth having “out there.’  I hope that having the report out in public will at the very least be a welcome contribution to our collective economic conversation, on the site and elsewhere.

Well, here we are in early April, right at the end of both the stimulus and the monetary largesse of the Fed (at least those portions that we are told about), during the period of time when I said that the economy would either have to be in serious lift-off mode or we’d be hearing about new thin-air money programs.

The economic news pouring out of the financial media networks is so bullish, it would seem that we are back on the path to economic nirvana.

Here are a few choice items from the past few days:

I have been working on a report where I examine the Treasury market (and auctions) very closely.  I need to fire off a quick update based on today’s market actions, which have my full attention. 

For the past year or so, all the world’s markets have been trading like one gigantic casino.  I ascribe this to the fact that market participants the world over have been reacting to the liquidity flood that’s been released by the world’s central banks.

Nobody really cares if things are overvalued or undervalued.  What they care about is chasing the momentum and not being left out.  Liquidity provides a very compelling explanation for what we’ve been seeing in various markets over the past year.

Right now I am *this close* to issuing an alert based on a breakdown in the US Treasury market that has resulted in the largest one-day losses in bond prices in quite some time.  They are not yet large enough to cause an alert to be issued all on their own, but rather I am on edge, because for months, the Treasury market has been extremely quiet.  Today it’s not.