The Fed: Soviet-Style Economic Propaganda?

“That,” I tell the Russian economist, “is quote-of-the-day material.”

We’re sitting in this small conference room in the center of Moscow, talking of opportunities in a misunderstood, wrongly despised economy, when the conversation turns to the notion of propaganda. At which point she tells me: “We had the Soviet Union. We are experts in propaganda. The Americans — they are like children.”

It will not sit well with Americans who refuse to believe the media and the government here at home are manipulating them, but her point is spot-on.

It’s a point I routinely make: Too many Americans gobble up the factual shape-shifting that spills forth from the media, and particularly from the federal government, and they think they’re well-informed citizens with fact-based opinions.

Worse, they believe like gospel the disinformation and misguided reportage from just about every mainstream media outlet, and they use that “information” as the basis of important decisions.

They never stop to think that a bias shapes the analyses and “facts” the media provides — that they’re victims of propaganda. They dismiss that possibility because this is America, and America doesn’t dish propaganda; that’s the purview of Nazi Germany, Communists and totalitarian states trying to sway the minds of the people.

So, the message of today’s missive is this: The best investors — those who see where the real risks and real opportunities lie — learn to disengage from the media and government analysis, and, instead, form opinions based on their own analysis of verifiable facts … or, at the very least, build around themselves a small stable of independent thinkers who have a global view of the world, who do not parrot the numbers and analysis peddled by the mainstream and who dismantle data to find where the real truth (or at least something closer to it) exists.

Fed

Only then will you get closer to a set of facts you can use to defend investment decisions.

The reason I bring this up is because of impacts the Brexit vote has had on thinking over recent weeks regarding the Federal Reserve and interest rates in America.

Because of Brexit, the chances that the Federal Reserve raises interest rates this year have fallen to 0%. The chances that it raises rates in 2017 has fallen to just about 0%, too.

In fact, savvy investors are now indicating that the next real opportunity for a rate hike will probably come sometime around January 2018.

Hark back to December, when the Fed finally raised interest rates for the first time in nearly a decade. Fed governors implied at the time that, because the U.S. economy was, to them, so clearly on the mend, they expected to raise rates four times across 2016.

Four rate hikes, thus, became the meme of the moment, and Wall Street’s propaganda machine — investment firms and their foot soldiers on television and in research notes — began pushing a four-hike theme that supported the message of a healthier economy.

The Real American Economy

At that exact moment, I was writing “You can’t trust the Fed” — that adding gold to your portfolio was the path to take because the economy was not nearly as healthy as portrayed, and that there was no possible way the Fed would raise rates in 2016. The economic data at home — despite the cheerleading — and the impacts overseas of higher interest rates in America simply do not support the Fed’s propaganda.

We’re now more than halfway through the year, and with every Fed meeting so far, the arbiters of monetary policy have found a reason to avoid raising rates, even though the Fed speaks of the economy in glowing terms (or, at least, glowing for bureaucrats).

Labor markets continue to improve, the Fed tells us — never mind that a quantity of low-paying, low-skill service-sector jobs continues to replace higher-wage, higher-skill manufacturing and white-collar jobs.

Inflation continues to be of little concern — never mind that the government manipulates inflation data through hedonic adjustments (to reduce the impact of inflation on government costs such as Social Security) and that true inflation, measured by the cost of things on which we spend our money daily, is rising by between 5% and 10% annually, according to the government’s own data.

Consumer sentiment remains high and consumer spending is solid — never mind that inflation-adjusted wages are lower than they were a decade ago, that consumer debt is back to precrisis levels and that cash-out home refinancings are racing higher — a combination that indicates consumers are alive only because credit cards exist and because they’re once again raiding the equity in their homes.

The worst bit of propaganda is that the Fed continues to tell investors that each meeting is “live,” meaning that a rate hike could very well happen at any meeting.

Laughable.

We will not see a rate hike in America this year — and if we do, it will simply be because a petulant Fed is miffed that Wall Street, like villagers discounting the shepherd’s lies, has learned to all but ignore the pleas of “Wolf!” that bellow from the Eccles Building constantly.

The Fed needs Americans to think the economy is healthier than it is, otherwise managing the economy becomes impossible because companies would lay off workers and reduce investment, and consumers would retrench. The economy would shrink, and with interest rates already so low, the Fed would have little capacity to instigate growth. We would face an economic crisis punctuated by a long recession.

Wall Street amplifies the propaganda, because it needs investors to believe the story of a healthy economy. An economic sand castle facing an approaching tide doesn’t inspire confidence in the future of a stock market that is demonstrably overpriced historically and which will see historically (egregiously) high corporate profit margins shrink — which will cause investors to revalue sharply downward the value of all stocks. (A fair price based on historical profit margins and a long-term, inflation-adjusted price/earnings ratio: the S&P 500 at between 1200 and 1470, a decline from current levels of between 32% and 44%.)

And mark my words — that day is visible on the horizon.

Ignore the Fed, Find the Truth

What we are led to believe as truth in America is no different than what Soviets were led to believe — or what today’s Russians are led to believe.

All governments lie because they have to. Believing D.C. on any level is an egregious mistake.

As well, most mainstream media lie — either through omission because the writers aren’t equipped to understand the bigger context of the world they’re writing about, or through commission because a particular media outlet is the voice of a larger political body.

Real decisions — the kind that make you money, that prevent you from losing your nest egg or that guide you to the best choice in a presidential election — are not based on propaganda conceived as sound bites. They’re based on independent analysis of empirical facts that are connected to a broader matrix of intertwined facts.

It’s that kind of analysis that compelled me to recommend