Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died – Leonard Cohen
As the markets continue to rally and hit yet new all-time highs again today, let’s pause a moment and remember what it felt like the last time the markets crashed and were down 10% from their highs. It was economic issues in the EU. Or was it a nuclear melt down in Japan? Maybe it was a coming municipal bond crash.
With bond and Treasury rates at all-time lows, in large part because they are so tightly by the Treasury and the Federal Reserve, the single biggest threat to our economy and the stock markets is, indeed, rates. If rates rise much at all here while the Republican/Democrat Regime is carrying around a $16 trillion and growing debt load, the interest payments will obviously be crushing. Where will we see indication that rates are getting closer to rising? Probably we’ll see it first in the inflation running through the economy, especially for commodities like food, clothing, shelter and in tightly controlled sectors like education, health care and taxes. Which leads me to a rather shocking result from last week’s poll.
Last week I took a poll about inflation from my readers here and our readers at WallStreetAllStars.com (which for a limited time is 80% off normal price). I put up the following chart and asked a very simple question – Does the government accurately report inflation as reflected in the real economy?
The results show that the economy is right now already suffering much worse inflation than the government is willing to admit. In a vicious cycle kind of way, their need to lie about inflation is mainly because of their continued desperate need to keep rates low.
Does the government accurately report inflation as reflected in the real economy?
- No, inflation is MUCH worse than they say it is. (75%, 421 Votes)
- No, but government reports are not terribly inaccurate either. (17%, 94 Votes)
- Yes. (4%, 25 Votes)
- Inflation? I see only deflationary pricing and trends. (4%, 24 Votes)
Total Voters: 564
So let me rephrase what the data (come see Wallstreetallstars.com/poll/ to see the full results and to vote in this week’s new poll) say there. A full 3/4 of you think that inflation is MUCH worse than the government says it is. More than 9 out of 10 of you think that the government understates inflation at least somewhat. And less 1 out of 11 respondents think that the government is accurate or that the Fed’s often cited deflationary boogie man is anything close to reality.
What will happen if rates begin to rise as investors around the world begin to demand higher interest rates to help offset the cost of inflation in their lives? I would guess that the US economy would immediately contract and that the so-called “austerity” we see around this country right now would seem like a luxury. Stocks would take a big hit and worry about civil unrest would rise. For the record, such a development would, as usual, be an incredible buying opportunity for those willing to take the risk when markets are crashed. Remember that the last time the markets crashed for economic reasons, Apple fell to below $100 a share, GE and News Corp trading in the single digits, and the SPY, QQQ and DIA have all more than doubled since those 2008 lows.
The big question, especially with the results of that poll indicating inflation is so much worse than the mainstream media and the government is willing to admit, is when, not if, rates will rise. Feet to fire, I would guess, as I’ve been saying since 2009 or so, that this cycle will likely take us to a asset price and stock market bubble bigger than any we’ve ever seen before and that we’ll likely see the cracks start in late 2014 or early 2015. And then of course, all of you will mindlessly vote for whatever Republican candidate the Republican/Democrat Regime and its corporate backers have put in front of you to “save the economy”. And the cycle will start anew sometime in 2017 or 2018.
Same as it ever was.