The Gladstone
Economic Newsletter
Volume 18, No. 13
November 5, 2023
The Fed Massively Intervenes.
Don’t Be Lured in by This Market Action.
DISCLAIMER: The following is not intended as investment advice, but is rather intended to promote your own analysis of markets and the economic climate. The author is not a registered investment professional. Any action taken as a result of this analysis carries a high degree of risk. This newsletter contains the personal opinion of the author.
Dear Readers-
First off, the US Federal Reserve massively intervened in the US bond and equity markets last week, driving an unbelievable market rebound. How did they accomplish this? My theory is that the Fed stepped into the Treasury bond market with a massive buying program, which drove the 10 year US Treasury rate from over 5% down to 4.5% in a week. The bond market does not move like this without massive intervention. When the Fed buys such a massive amount of bonds to accomplish this, the Wall Street firms are left holding a lot of cash that has to be deployed- in this case directly into the equity market. I am also pretty confident that the Fed goosed the equity markets with its own buying intervention, which triggered a massive short covering operation by major market players who went from very short to very long in the course of five days.
The Fed doesn’t employ a very large numbers of traders on the “plunge protection team” for no reason. At the end of the previous week, the markets were very oversold and due for a technical bounce. Knowing this, the Fed struck with a massive open market operation. This is not how markets are supposed to work! However, once the Fed’s “play” became evident to Wall Street, the street piled in. Again for those of us who were trained in classical market behavior during the period 1970 to 1995, this is not how markets function. This whole episode is reminiscent when the Fed intervened in March of 2009 to turn the market around at 666 on the S&P 500. The market had only completed about 80% of the move needed to cleanse the excesses from the market. Instead of being cleansed, the US equity markets have been a Frankenstein creation ever since. People who have traded in the market for the last 15 years have not experienced a truly functional equity market. This fact is going to have huge implications shortly.
I have argued that the Fed has had negative equity for years, due to off balance sheet losses in the vehicles set up to manipulate the markets and also due to debt securities that have gone bad in their portfolio. Officially, it appears the Fed has $70 billion in negative equity now on its published portfolio positions. I personally think this is just a drop in the bucket. The really bad news is that we are all carrying around these things called “Federal Reserve Notes” in our wallets and purses. Note the use of the word “Note.” These are not money- these are promissory notes that the US Government foisted on its public over the decades.
Now let’s look at real money, courtesy of Tavi Costa of Crescat Capital:
This one illustration tells you just about everything you need to know, in one handy chart.
I another example of one illustration telling you everything you need to know on another subject, the following picture was published by Slavyangrad with the attached caption:
“The American M2A2 Bradley infantry fighting vehicle has lost its turret.
The owner can contact us for the location.
@Slavyangrad”
Ukraine has become a graveyard of western military equipment. Huge numbers of pictures have been published showing dead armored vehicle carcasses littering the battle lines. These are overwhelmingly Ukrainian or western vehicles. One picture features about six West German Leopard 2 tank hulks, destroyed side by side on the battle line by Robytne. Excuse me- the German government has insisted these be called Ukrainian tank carcasses once they were turned over to the Ukrainian Army. The NATO countries have literally stripped themselves bare of armaments to replace the earlier losses by the Ukrainians. This has been a seemingly never ending cycle of destroyed equipment replaced by even more western equipment. Except now it appears the pipeline of equipment and supplies has almost completely dried up. The insanity of the whole Ukraine war is summarized by the above picture. The interior paint on the Bradley turret hardly had any wear on it. I suspect this Bradley was a reserve unit that had been produced years ago and put in storage without any hard field use.
As regular readers know, I follow the number of US M777 artillery howitzers destroyed by Russian counter battery fire. Instead of the official 280 or so units supplied by the US, I believe that at least 1,000 units of M777 have been supplied and almost entirely destroyed by the Russians. The US has had to be stripping active field units of the US Army and Marine Corp. to supply these. Ditto everything else the West has supplied to Ukraine. The German and UK armies might not even be called functional at this point due to the amount of weapons supplied. Everything has to be just about stripped bare. The only thing the US has an abundance of is M1 Abrams tanks and cluster bombs. Oh, and now obsolete aircraft, judging by the performance of the Russian Air Force. Who ever thought I would ever say those words?
The Russians have succeeded in hitting a huge number of Ukrainian ammunition depots, including major depots in western Ukraine that were thought to be transit points for depleted uranium ammunition from the UK. NATO is evidently shipping in F16 fighter aircraft into Ukraine to replace to a small extent the huge losses of aircraft experienced by the Ukrainians. I have to say that the Ukrainians did an excellent job of taking several hundred Soviet jet aircraft out of the various aircraft boneyards in Ukraine in order to get them in the air again. I suspect Ukraine ran out of pilots quite a while ago. These aircraft have almost entirely been shot down. In one five day period, the Russians downed an incredible 24 Ukrainian aircraft using their version of AWACS and S400 missiles. The Russians have also created huge advances in other air defenses and have made huge advances in drone warfare. The US can’t compete with this, thanks to decades of the US being plundered by its military industrial complex and the institutionalized idiocy of the Biden administration. We are in serious trouble if the military is needed anywhere in the world. We are also in a world of hurt if we need to access the now-plundered Strategic Oil Reserve.
The Biden Administration and the west have another huge disaster on their hands in the Gaza strip, As per my newsletter last month, more information has come out that the Netanyahu government in Israel knew the attacks on October 7th were coming. Reports even had Israeli Army units pulled away from the Gaza border two days before the attack. I could go on at length on this and other points, but let us say that world opinion has solidly turned against Israel and the US on Gaza.
The internet has a lot of videos released by Hamas showing RPG and other explosive attacks on Israeli tanks. As I mentioned in my last newsletter, the current Israeli Army is not the army of the 1967 and 1973 wars. In no way shape or form am I a supporter of Hamas or the slaughter of October 7th. At the same time, there are videos showing such things as Israeli soldiers taking the surrender of four Hamas fighters with hands up in the air on October 8th and then shooting them down. The soldiers then dropped captured weapons next to the bodies. Yes, it is war and things like this happen in war.
What isn’t supposed to happen in war is the indiscriminate bombing of huge sections of Gaza, bombing hospitals, using white phosphorus bombs on civilian areas, and even bombing a convoy of ambulances taking civilians to the hospital (Israel claims Hamas fighters were in the ambulances; Palestinian video shows wounded and dead civilians being hauled out of the ambulances). The Israeli government (and the US) has lost the propaganda war. A large portion of the world population is appalled by what Israel has done under Netanyahu’s leadership. Yes, October 7th was horrible, but 2.2 million people in Gaza are paying a huge price. Large demonstrations are occurring on a daily basis around the world in response to the actions of the Netanyahu regime.
For myself, the breaking point was the “mystery” attack on the northern Gaza hospital that resulted in large casualties among civilians clustered outside in the hospital parking lot. Israel claims that a misfired Palestinian rocket fell to the ground, and supplied video footage of a rocket launch at the same time as the huge explosion. Unfortunately, a video of the same events from a different angle show the rockets going completely away in another direction than that of the hospital. I have come to the conclusion that due to the very audible and characteristic “bomb whistle” in videos of the explosion, that this was a small(er) Israeli bomb that was set to detonate above the ground. Very lengthy analyses of this event are available on askeptic.substack.com and bmanalysis.substack.com. I very much recommend both of these sites.
My largest worry is that the Netanyahu regime wants to “ethnic cleanse” Gaza, by forcing the entire population over the Egyptian border. This may seem farfetched, but the possibility (now decreasing) bears watching. Nothing is out of the question now.
Why do I spend so much of my newsletters on Ukraine and Gaza? Because our whole western economy hinges on the outcome of these conflicts. Let’s shift to some pithy observations from the general public:
Adriatic Hillbilly posted the following comment on moonofalabama.org blog:
"New technologies" did not break the stalemate of the first World War -- the entry of the US in 1917, with its fresh forces is what tipped the balance. Had the US not entered, the Central Powers would have eventually prevailed. And most likely the world would be a much better place today.”
BeMildred commented on moonofalabama.org:
"Never get into a land war in Asia"
"Never march on Moscow"
And especially don't do it with no industrial base.
Simplicius the Thinker’s Lyceum simplicius76@substack.com posted this analysis of Biden’s major speech on Gaza:
“Biden’s repugnant address to the nation was fraught with an unprecedented lack of self-awareness. Bloated with hubris, it showed the naked face of U.S.’s callow and abject servitude to the globalists who’ve highjacked not only America’s foreign policy, but its domestic one as well—and everything in between.
You have to be in some kind of drugged stupor or under the spell of establishment narrative to not notice the hideously rank hypocrisy that flowed from Biden’s demented, medically-malformed mouth tonight. In the same sentence, he unironically condemned Putin’s “barbaric invasion” over a smaller neighbor while begging for tens of billions for Israel to…carry out a barbaric invasion over its smaller neighbor.
How is it possible for that many people to be so asleep as to not see the patent hypocrisy in that? We’re to believe that Putin’s “cruel and unjust” bombs are killing Ukrainians while Israel’s “justified” bombs are merely ‘collateralizing’ the Palestinians.
At the ~2:50 mark, he even has the gall to compare Hamas to Russia in that “they both want to annihilate a neighboring Democracy.”This is gaslighting of historic proportions—and Biden loves historic overtures, after all he compared himself to Abraham Lincoln during the speech. “
“The world is sick of the rank hypocrisy and double standards of the West. This is why I believe today’s speech marks a pivotal point which we may look back to one day, many years in the future. Biden is the perfect emblematic “terminal president”—a sick, decaying, geriatric, craven and amoral, medically-induced, plastic sock-puppet who represents the terminally diseased final days of his decaying empire.”
Plain and simple, the world is fed up. With everything.
On to some graphics to close this newsletter: