Down the Rabbit Hole

“The hurrier I go, the behinder I get,” is oft attributed to the White Rabbit from Lewis Carroll’s, Alice in Wonderland.  Where this axiom appears within the text of the story is a mystery.  But we suspect the White Rabbit must utter it about the time Alice follows him down the rabbit hole.


Pick a rabbit to follow…


No doubt, today’s wage earner knows what it means to work harder, faster, and better, while slip sliding behind.  However, for many wage earners the reasons why may be somewhat mysterious.  At first glance, they may look around and quickly scapegoat foreigners   for their economic woes.

Yet like Wonderland, things are often not as they first appear.  When it comes to today’s financial markets, there is hardly a connection to the real economy at all.  Stock markets are just off record highs, yet 6 in 10 Americans don’t have $500 to cover an unexpected bill.

A curious fellow may look around and find more questions than answers. Where is the money coming from?  Where is it going?

Before he knows it, he’s gone down the rabbit hole where he observes the darnedest things.  He may even discover that the Federal Reserve, with its fiat money, has created and perpetuated insane and incomprehensible levels of debt. And that this, in turn, has blown the economy up into a massive financial bubble.


What bubble? It is perfectly normal for large cap stocks to rise six-fold in a little over eight years. As you can see from the insert, it’s a real thinking man’s market. That means, it is a market that is giving men time to think about other things than the market. After all, it only goes up…  a market for passivists, so to speak, for peaceful Prozac junkies and Valium zombies.  When askedWhat do you say to Fed officials who worry about potential bubbles in asset prices?”  former FOMC member Narayana Havenstein recently noted: “I am not convinced that these are major risks to the economy.”  See? Nothing to worry about!  Nothing can go wrong… Ommm – click to enlarge.


On top of that, if he follows the money, he will see that the Fed’s endeavors have resulted in extreme the concentration of wealth in the hands of the few while looting the many.  Hence, he’s discerned a more accurate reason why the wage earner must run faster and faster while falling further and further behind.


Monetary Madness

Obviously, such a mad system can’t go on forever.  But it can go on much longer than any honest person would dream possible.  The experience since Tricky Dick Nixon closed the gold window nearly 46-years ago bears this out.

Moreover, the experience over the last 8-years, attempting to normalize from ZIRP and QE, confirms the unique ability for madness to persist. In short, monetary policy has gone mad as a hatter.

Its reasons don’t rhyme and its rhymes don’t reason.  Just this week for instance, Fed Chair Janet Yellen raised the price of credit in the face of a deflating economy. Doesn’t this go contrary to the Fed’s standard operating procedures?  Are they just providing cover for the next great market bust?


Is the evil rabbit getting ready to disturb the peace? The annual growth rate of the true US money supply TMS-2 has now declined to its lowest level since September of 2008, and commercial &industrial lending seems close to crossing the zero line the wrong way (in preparation of falling off the chart, presumably). The last time business credit grew at such a slow pace was on the way up in April 2011, a very different situation. Total bank lending growth (including mortgage loans and other loans to consumites) is at a new low for the move as well (4.31% y/y). Obviously, we have no problem with that… but it is a bit bizarre to read Fed missives about “balance sheet normalization” under these circumstances. We have to wonder what the planers are looking at (it can’t be this chart, that much is certain). Is the Fed about to voluntarily and deliberately shrink the money supply and precipitate a stock market crash? That is really hard to believe… more likely they are mesmerized by a mandate-driven false sense of security – click to enlarge.


To be frank, to carry out the dirty deed of price fixing credit markets one must possess credentials from a prestigious university, have worked under a lengthy and trusted tutelage, and proven to be of elite pedigree.

When it comes down to it, the philosophy is superficially based on the unfounded belief that one can connect the dots of fabricated data and then monkey up or down the price of credit to make future fabricated data appear more to the Fed’s liking.

Below the surface, however, the real philosophical nuts and bolts are revealed; it’s all about keeping the big bankers flush with cash and credit so they can collect rents while indenturing generation after generation with lifetimes of debt.

Here is a brief excerpt from Wednesday’s FOMC statement.  The charade Yellen and the Fed must play are straight out of Wonderland.


“The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.  Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.  Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

“In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent.  The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.”


This is FOMC Jabberwocky at its finest. Still, the Fed fails to mention one very critical piece of nonsense.  That is, if one runs fast enough one can sometimes catch the rabbit.  Then, if they so choose, they can eat it.  Here’s what we mean…


Beware the Jabberwocky! Eagle-eyed readers will already have discovered the associated  poem.


Rabbit Consumption

One of the many things we didn’t grasp until we became a father was just how exhausting and expensive it is.  No vacations.  No markdowns.  Not even on Father’s Day.

We’re not complaining.  In fact, we wouldn’t have it any other way.  Given that Father’s Day is upon us, what follows, for fun and for free, is a brief anecdote from a certain Father’s Day of yore; one that took place not long after the commencement of today’s late-stage bull market.

Specifically, on Father’s Day 2009, after opening a card, and trying on a new pair of shoes, our fetching bride informed us the in-laws – and several outlaws – were coming over for a backyard barbeque.  That meant we had plenty of chores to do, and quick.

We edged the yards, cut the grass, cleaned the gas grill, hosed off the patio furniture, emptied the trash, and more.  Then, after pausing a moment to drink some water, it was off to the market where we emptied the cash from our wallet to buy steaks and all the fixings… well almost all, that is.  For cousin Cesar brought the rabbit.

“It’s good,” promised Cesar, grinning through a gaping hole in his front teeth which we presume was knocked out in a Mexico City street scuffle back in his native country.


Rabbit a la Cesar – well-aged and tender… it sure got caught. Reportedly almost tastes like chicken (or perhaps it doesn’t really). Unlikely to jump off your plate and run away.


Naturally, we had some reservations when he pulled out a whole rabbit carcass, free of its fur and guts, from a bag where it had been soaking in a cocktail of chili peppers, chopped cactus, and lime juice.

These reservations were further heightened by the pungent stench we wafted on the neighborhood for nearly 90 minutes while roasting it on the grill.  By the time the rabbit was done cooking we were positively certain it wouldn’t be good.

Still, as we bit into shredded chunks of smoked rabbit flesh, we hoped somehow it would taste like chicken or, better yet, a slow smoked Boston pork butt.  Alas, it didn’t.  We choked down a bite or two and then, when no one was looking, promptly discarded our plate in the trash.

“Next time we’ll bring crocodile,” said Cesar with a wink.

Just as long as he doesn’t bring fish


Bonus Chart – The FANG Craze


This chart was recently shown at Zerohedge. The correlation between central bank balance sheets and the “FANG” stocks is not what is most interesting about it in our opinion – rather it is the fact that the FANGs and the rest of the market are drifting apart (the ratio of the cap-weighted vs. the equal-weighted SPX is actually already a relative performance proxy). This correlates actually quite closely with the slowdown in money supply growth shown above (Y-o-y TMS-2 growth hit an interim peak in November 2016 and has been roughly cut in half since then). Similar behavior could be observed close to nearly every major market peak (“close” is a relative term though – it is not possible to determine a priori how long such a divergence will persist. We plan to discuss this shortly in a separate post).


Charts by: Stockcharts, St. Louis Fed, Zerohedge


Chart and image captions by PT


MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.




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