Dissing Price Discovery

Da-da, da-da, da-data… What, if anything, does it all mean?

Dow down 92…Crude holding tight at $88…Gold hovering around just below $1,600 an ounce…Ten-year Treasuries retesting historical lows, at 1.46%…Dollar index up half a smidge, to 83.5…

Muddle along…muddle along…muddle along…

What are the markets telling us, Fellow Reckoner?

In a word: Nothing.

As investors are fast coming to realize, the markets couldn’t tell us anything even if they wanted to. Mr. Market has a gag in his mouth, his voice muffled by the price fixers. And we don’t just mean LIBOR-rigging bankers in The City. We’re wagging fingers at the real fixers…the Feds.

It’s something we heard again and again at last week’s AF investment symposium in Vancouver. “Prices are broken,” noted Dan Denning, the big, bright mind behind the Aussie Daily Reckoning. “They are not to be trusted.”

Dan spoke candidly about the mechanisms behind the curtain:

“How can anyone possibly take Ben Bernanke seriously? He told the Senate Banking Committee that the Fed’s unconventional policies have been, ‘effective in easing financial conditions and promoting strength in the economy,’ and that, ‘Large-scale asset purchases have also contributed to economic growth.’ He added that the Fed is ‘prepared to take further action as appropriate to promote a stronger economic recovery.’

More action. More fiddling. More distortion. And more restraints on Mr. Market’s ability to communicate real world prices, real world information, real world demand. So, where do we go from here?

“We are at the absolute frontier of monetary policy,” wrote Dan in a recent Aussie DR. “The Fed can’t ‘promote growth’ when households are reducing debt. It’s telling that Bernanke said the government needs to get fiscal policy in order (spending), in order for consumers and businesses to be more confident about taking risk. But it’s as if the Fed and its mainstream lapdogs are completely unable to imagine their set of tools not working on the economy.

“Bernanke said the Fed has three tools left in the box to promote growth. He can reduce the rate the Fed pays on reserves banks deposit overnight with the Fed. He said the Fed can communicate its intentions differently. And he said further asset purchases could happen.”

Da-da, da-da, da-data…

Continued Dan: “Does anyone really think the US and world economies aren’t growing because the Federal Reserve isn’t communicating effectively? Maybe it’s because the Fed has destroyed rational decision making by wrecking the system of price discovery through the manipulation of money.”

The Dow is up over 600 points year-to-date. But 600 points of what? Thanks to their ongoing commitment to institutional-level counterfeiting, money just ain’t what it used to be. How, then, can we measure what it buys? Simply, we can’t. Not honestly anyway.

“The Fed IS the problem,” concluded Dan, “not the solution.”

Unfortunately, the financial markets are not the only sector of society laboring under the crushing weight of the state. As Jeffrey Tucker, executive publisher of Laissez-Faire Books, explains in today’s guest column, the Leviathan is growing both in measurable…and, more frighteningly, immeasurable…ways. Look out below…


Joel Bowman,
for The Daily Reckoning