We are sitting on top of a house of cards

As I type, the Dow is down over 100 and there is gloom and doom on Wall St. And in Europe.

Here’s what the AP had to say a few minutes ago…

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Worst day in a month for US stocks

NEW YORK (AP) — The stock market suffered its worst loss in a month Wednesday after a weak bond auction in Spain caused fears about Europe’s debt problems to flare up again. Gold plunged to its lowest level since January.

Investors looking for safe places to park money drove prices for U.S. government debt higher. The dollar surged against the euro…

The selloff was caused by a disappointing auction of government debt in Spain. Bond yields there shot higher, a signal that investor confidence in Spain’s finances is weakening. Spain announced tax increases and budget cuts last week….

In the United States, minutes from the last meeting of the Federal Reserve showed that members had a sunnier view of the economy because of strong gains in the job market in December, January and February.

But the Fed also signaled that it is unlikely to buy more bonds to help the economy. The Fed has embarked on two rounds of bond-buying in the last several years, most recently in August 2010, to lower interest rates and help stock prices.

If you’re a regular reader, you know that the stock market is what’s called a “trailing indicator”, in other words, it reacts to market perceptions. You’re also not surprised that Spain is having problems peddling their sovereign debt, nor will you be surprised when Italy experiences the same problem with theirs, and when Greece comes to the table for a third bailout, you won’t be shocked.

What may be a tad eye popping is this report from Lee Adler in the Wall Street Examiner as reported in ZeroHedge about the Federal Reserve.

In today’s economic news, the mainstream media focused on the disappointment surrounding the FOMC [Federal Reserve Open Market Committee] Minutes, the massaged and sanitized fairy tale about what the participants said at last month’s FOMC confab. The market was shocked! SHOCKED! that most of the members saw no need for additional QE, unless things got worse.

…The minutes are fake. They are fabricated, false, phony, and sterilized garbage, designed for public consumption. To put it bluntly, they’re propaganda. They are what the Fed and Wall Street casino owners want you to think. They are a blatant attempt to manipulate the behavior of market participants through the use of clever turns of phrase.

Adler follows with a pretty technical dissertation on the Federal Reserve and how Bernanke’s moves in 2008 exacerbated the problems and how we’re being set up for round two. His conclusion is pretty stark.

The issue now is when will the Fed make its next catastrophic blunder. Just by tapping the brakes on the SOMA [Fed’s System Open Market Account], it is creating conditions for another swoon. It is trying to hold back commodity prices while getting the benefit of economic growth. The problem is that that growth is a second order bubble effect of the rising stock market. If they don’t feed the market, they won’t get their economic growth. If they do feed the market, commodity prices will explode upward, and that will eventually put a stake in the heart of growth. For now, manufacturing activity is on a growth track. On the surface it appears that the Fed’s propaganda and manipulation is working, but in truth Bernanke has laid the groundwork for the Fed’s next blunder, panic move, and massive dislocation.


We are sitting on top of a house of cards. The US Government has not had an operating budget in three years. This President has yet to propose a serious budget, he sends political documents to Congress so he can rail about the “do nothings”. His latest budget fiasco was offered in the House and was defeated 414-0. Zero. Democrats have controlled the US Senate for Obama’s entire term, it takes just 51 votes to pass a budget, it can’t be filibustered. The Democrats have refused to even bring a budget to a vote, even though they could introduce it and pass it before lunch on any given day the Senate is in session.

Our national debt is skyrocketing, we crossed the 100% debt-to-GDP ratio in December and we’re headed for the “magical 120%” like a runaway train. The administration refuses to produce a realistic picture of the state of the US economy and the open rebuke from the CBO earlier this year showing the dislocation between what will likely occur and what the administration insists will occur over the next ten years based on the difference between what the President is assuming vs. the CBO.

Europe is nothing short of a bomb just waiting to go off. As we’ve discussed, Greece is going to have to go back to the well. They have elections coming up and the politicians will have hell to pay over the austerity programs that the European Central Bank (ECB) has extracted. Not only will their people be up in arms, their economy won’t be recovering any time soon. Spain is queuing up as the next domino, with Italy not far behind. Europe is in a recession that their bankers are selling as “mild”. We’ll see this summer. If their recession is, in fact, more serious than “mild” it will hit the US like truck, they are our number one customer.

Let’s not forget $5.00 gas and quickly rising electricity rates thanks to the President’s inaction on energy development while he schmoozes his green buddies with drilling exploration bans and the EPA killing the coal industry.

Sorry to be a wet blanket. Really I am. But somebody’s got to stare reality in the face and sound a warning. There IS something you can do. The election is in November. Get involved at your local level, write a check to conservative candidates and get involved in a campaign. And vote. The stakes are too high to sleep in.

Michael Becker

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