Regarding
the recent Central Bank coordinated intervention, the key take-away point is
that the ECB and US Federal Reserve attempted “shock and awe” tactics with
their latest announcements by throwing out words such as “unlimited” and
“open-ended.”
The
implication here was that the Central Banks would do everything they
could to prop up the financial markets. However, as has been the case with
every Central Bank intervention, there are unintended consequences.
The
first unintended consequence concerns the fact that both programs are
essentially a form of “intervention to infinite.” The problem with this is that
the primary driver of stock prices over the last three years has been the
anticipation of more monetary stimulus from Central Banks.
Indeed,
the New York Fed itself has openly admitted that were it to remove the market
moves that occurred around Fed FOMC meetings (the times when the Fed announced
new programs or hinted at doing so), the S&P 500 would be at 600 today.
So,
by announcing programs that will be on going in nature, both the ECB
and the Fed have removed the anticipation of future Central Bank
intervention from investors’ psychologies. This could become highly
problematic, especially if these latest announcements turn out to be duds.
Speaking
of which…
Spain’s
ten-year bond yield has broken back above 6%. To see Spain’s sovereign bond
yields rising like this after the ECB announced it would essentially
provide “unlimited” buying as support is simply stunning. And it indicates in
plain terms that the ECB’s program was in fact a dud.
In
other news, we find that even barely literate high school students have a
better understanding of job creation than Washington.
In
case you missed it, recently the US public school system has implemented a series
of reforms to mandate what students should eat based on a healthier diet.
The
program was spearheaded by First Lady Michelle Obama, who, despite not being a
nutritionist or having any sort of medical degree, has decided she knows what’s
best for children in terms of their diets.
As
a result of the reforms, the cost of school lunches has risen by $0.20-$0.25
per plate. And students don’t like it. In fact, many of them have begun
protesting the reforms saying that they’re hungry and the food portions are not
enough.
However, the far more interesting development concerns students
who have begun a black market of selling food to other students. Several enterprising individuals have
begun bringing food to school and selling it to other students. One student
simply brings in a chocolate syrup bottle and sells “shots” to classmates.
Bear in mind, SAT verbal scores just hit their lowest levels
since 1972. And this is after the test was dumbed down several times.
What’s
my point with all of this?
That
high school students, even those who are borderline-failing their SATs, have a better
understand of economics and job growth than Washington bureaucrats.
Welcome
to the USA.
The
reason the US rose to power was due to a Democratic Capitalism of innovation
and entrepreneurialism, NOT the Government running things. In the recent case
of school lunches, the Government has gotten involved, prices have gone up, and
students are unhappy. As a result, other students have stepped in, creating a
sub-economy for lunches in the schools.
Want
to fix the economy? Get the Government out of the way. Heck, even SAT failing
high school students know this.
But
don’t expect the folks in Washington or at the Fed to get this. They believe
that the medicine for the economy’s sickness is the very item that caused the
sickness in the first place: more debt and loose monetary policies.
There’s
a word for low economic growth and high inflation… it’s called stagflation… and
it’s going to be getting worse in the coming months. Gold and Silver have
already broken out of their wedge patterns, and the US Dollar is getting
perilously close to breaking down in a BIG way.
On
that note, we just published a Special Portfolio of unique inflation hedges:
investments that will not only maintain their purchasing power but will
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currencies.
We’re
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This
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To
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Phoenix
Capital Research