welcome to the kaiser report imax kaiser mirror mirror on the wall who's the boom is stock market of the mom it's the narcissist's rally having corner the market in their own reflection the narcissist sees prices rising rising rising as the narcissist himself by. his own supply safety max yes indeed you know markets are hitting all time highs everywhere but in the united states c m b c says big reason for stock boom companies buying back stock and i they call it the narcissus rally i think they took it from you but they said sure there are plenty of forces pushing stocks higher record corporate earnings small

investors finally buying again signs the u.s. economy may be strengthening central banks flooding the financial system with money but you may want to spare a thought and a healthy dose of worry for what is one of the biggest and least appreciated reasons for their rally buybacks oh yeah so the overall economy is doing quite poorly and earnings are not really there their earnings as reported by the big four accounting firms are they're cooked they cooked the books the stocks are rallying based on stock buybacks how do companies afford to buy back their own stock they borrow money from the fed it's zero percent interest rate so here it once again the zero this is an unintended consequence or intended consequence of zero percent interest rate that gives companies a way to buy back their own stock for free because they borrow money from the frett fed for free not fred but the fed for free then they buy their own stock they jack the price up but of course the executives have options tied to stock price they cash out the options they pay themselves millions and millions of dollars of the bonuses and salaries and a lot of times people say oh look i'm only taking

a dollar in salary but i have a five million or ten million or twenty million in bonuses tied the stock price i'm going to go buy back our own stock trigger. the bonuses i pay myself oh how to make fifty million dollars a week or oh i guess because i'm so smart i'm not i'm gaming the system or the fed is corrupt or the bomb is corrupt or that holder is corrupt no no that's the reason it's because i'm so smart they're looking in the mirror and they see the reflection of themselves it looks great now there have been two hundred eighty six billion dollars of buybacks which is up eighty percent on last year and the article says that buybacks are also crucial to the rally for a reason that's not widely known companies are one of the few big stock purchasers nowadays nearly every other big player in the stock market has been selling more than they've been buying the same distribution is going on behind the scenes behind the price action but the prices are rising because companies are buying back their

own stock the reduces the float so earnings look better they said all the corporate earnings are higher because they just bought all their own stock to retire to defect of early so the same amount of dollars of the earnings is applied toward a less number of shares like oh we're making better record more profits because of less shares so the earnings look like they're better and we're going to buy more stock with the money we're getting for free to retire more stock and make our earnings better and we can buy more stock so it's narcissism taken to an extreme and of course like it or is they're flying too close to the sun the the waxwings of this narcissistic rally are going to melt and then you have fresh yeah and but a lot of commentators saying that this is from c n b c but a lot of commentators like business insider might say or paul krugman allegedly nobel prize winning economist they say that the market's going higher and that this is a great sign that the economy is improving everything is going all right but as the article points out pension funds have been selling the local and state governments have been selling investment brokerages have been selling and yes until recently

even main street investors so is genuinely a market of like oh i'm a broker i'm a banker and look oh i'm i'm buying. buying and now the market's going up i've done a great job actually you know it's not says i'm square or narcissism at the speed of narcissism squared because look at a deal like carl icahn buying into herbalife it herbalife is a ponzi scheme herbalife was on its way to going out of business it's a multi-level marketing scheme otherwise known as a ponzi scheme what is funny guy was shorting the stock aggressively twenty million shares or more of one hundred million shares outstanding in herbal life but then carl icahn comes around and starts to buy the stock not because he likes herbalife because he likes the company but because another had fund manager short and he can torture that other hedge fund manager by buying stock or going along and creating what's called a short squeeze so now the herbalife stock is trading near all time highs is it because the underlying company makes sense economically no it's a ponzi scheme is it because it's well managed no it's

a ponzi scheme do you have one hedge fund manager battle going the other hedge one money both bill a quint and carl icahn are borrowing money from the wholesale market a near zero percent rates to do battle against each other narcissistically to fight over a ponzi scheme that sells herbal life products to people who themselves are narcissists who are buying stuff because they don't understand why they're fat stupid enough so they buy supplements to try to fight the fact that they are fat stupid and idly and they have these two hedge fund managers battling over a buddy's game all fueled by been pretty icky the north is just north of the star system. i think you could call a high frequency narcissism as applied to the pyramid scheme which is herbalife yes exactly. so little speaking of pyramid schemes let's move on to another narcissistic market going on at the moment the art of selling out to the faceless money men when prices are going crazy

a crash must be on the horizon warns oscar humphreys so in new york this past week leonardo dicaprio presided over an auction and. broke records smashed records no this was no isolated event these inflated prices were mirrored by options as how the bees in christie's that made nearly half a billion dollars the highest total and auction history but max get this highest totals in auction history this past year mirrored in the auctions the buyers are often the galleries that represent the artist or collectors that own other works by these artists the more they pay the more valuable the work they already own because. most of the posers game. christie's and the other one self-abuse have been involved in scams in the past for their financing the purchase of art to jack the price up of art work to make the catalog or back catalogue worth more that's an old trick it's the same concept i see your point that when

a company buys back its own stock they're just to manipulate the stock price higher to make their bonuses higher so i think in the art world of the options the big auction houses are buying to stock the paintings that they're supposed to be auctioning at a higher price to make everyone involved much wealthier and we see this all the time in many markets now across the board whether it's the energy market the art market any market now is being manipulated indexes and various ways to. sell products that are derivatives are all based on a a a so for reflection of fraud so when you ask these big four accounting agencies they basically their job is to create mirrors for you to look at yourself to commit fraud well also think about what the central bank in the u.s. federal reserve bank under ben bernanke has been doing is buying up assets at full face value from the banks in order to make the banking system and the economy look better because and this is what we keep on being told actually by the fed is that

we're making so much money on the assets we've bought you know i'll give you another metaphor here is the portrait of dorian gray so the stock market's hitting new all time highs but the economy's. up in the attic and as aging quite rapidly and starting to look like junk strongly quite bad you see but they all the cosmetics of the high frequency fraud and the accounting fraud and the purchases of one's own stock and the hedge fund managers battling over pyramid schemes makes it look like for at least a day more that the economy is that sickly old decrepit in dead into all such time as if there's a reconciliation and then you have another big crash now finally regarding this art market story of the british collector frank cohen just back from new york says the contemporary art market is like the stock market it's about finance the art is there but it's a commodity these guys use it to make money you can't do that with impressionist art because no one has a monopoly right well look at damien hirst for example here's

a mediocre artist who is made sleazy his stuff is kitsch it's kids you know it has about as artistic value as a burger king wrapper but saatchi and saatchi backed him and they monopolized all of his work and they forced a price higher another as interesting aspect of this is that the old masters who are dead and can't make new art their stuff is considered to be less valuable than the new artist because they're alive can create more stuff so the whole idea of authenticity is trading down in this clone based on statistics art world but also you can kind of compare it to the financial system is here you could have print unlimited numbers of dollars gold you can only increase the supply by two percent a year ago in full production and yet this is how the federal reserve bank has a monopoly these endlessly printed dollars remember when artists died the value of their work would jump higher now in a new post-capitalist world is the reverse when an artist dies the value of their

work crashes because they're not around to create all the copies of their work in a scam pyramid scheme. any longer so the value crashes so once again we're in a post capitals post the static post modern era where the more junk you forced into the system the more valuable becomes the more bonds you create the more valuable they become the higher the demand for something like gold or i'm a tease or picasso the more the price goes down and then finally speaking of narcissism of course here in the u.k. we have david cameron and his government who all look like him they all come from the same school they all talk like him he sees himself and everybody he looks at and the chief narcissist of all george osborne his chancellor beware the bubble we risk another housing crash warns bank governor britain is risking another housing crash and billions of pounds of debt through a plan to help people onto the property ladder the bank of england governor has

warned this is mervyn king he is saying this as the exit the door of course helped by by which the taxpayer underwrites as much as fifteen percent of mortgages on homes worth up to six hundred thousand pounds could send prices soaring warned serving king so along with the narcissism this is the government buying its own housing stock causing the prices to go up and saying look our economy's getting better exactly right another example the government's going to be buying these houses and the price will go up because they're manipulating the market and then they'll say the economy is improving because of the house prices going up regardless of the fact that nobody living in those houses and anything to the economy nobody who does anything day to day that's actually increasing the g.d.p. of the country only speculators lawyers bankers accountants are living in these shacks put up by osborne remember dolly the sheep was the original cloning experiment here in britain what people don't know is that george osborne is a cloning experiment as well as some of the fodder they found in the bathroom at

eton and they mixed it up in a test tube and nine months later popped out a test tube was born but they grew in a very hot house and they put him into the chancellor's office. now he's out there spewing this pyramid scheme wielding nonsense thanks to. our i stated for the second half i'll be speaking to jim records.

to build a new. mission to teach me. why you should. only. with. the consent. she. chooses to store. welcome back to the kaiser report i'm max kaiser time now to go to new york and

speak with jam records author of currency wars for the first a two part interview jim rickards welcome to the guy's report. thank you max all right now jim records you were quoted in the new york post this week as saying quote we don't have to worry about a recession we are in a deep pressure to explain well we've been in a depression since two thousand and seven max and a lot of people. you know mainstream economists don't like to use the depression the word depression or what i call the d. word the reason economists don't like to talk about depression is because it's not mathematically defined a recession has a mathematical definition it's two consecutive quarters of declining g.d.p. with rising unemployment depression is a little more amorphous and it doesn't mean that the economy is declining all the time you could have growth in a depression what makes a depression different is that you make a growth but you don't get trend growth you get a sustained long period of below trend growth that's what keys to find and i think that's the right definition for example take the great depression from one thousand

nine hundred forty you actually have pretty good growth in one nine hundred thirty three one hundred thirty four one hundred thirty five then we went back down into a severe recession within the depression thirty six thirty seven so they never got back to trend unemployment ever came down to where they wanted it so that's what a depression is just this long grind japan's been a want to were we the united states are in one now well jimmy mentioned the depression of the one nine hundred thirty s. and talking about a depression now in the u.s. i'm curious about how the media treated these two events because during the thirty's everyone knew that there was below trend line growth and there was officially the great depression these days or seems to be a split in the media some people think as you were pointing out that we're below trend line growth this institute this equals a depression but the majority of mainstream media doesn't even seem to recognize the depression and also how do you account for the split in the way that it's reported was fairly simple max majority of mainstream media are not done that very

much by the economics mean there are a lot of reporters there smart people who are working they try to get the story and i respect that but you can't hold. journalists even a financial journalist to the standard of an economist so they rely on our policymakers are telling the policymakers are engaged in basically propaganda were lying to be blunt economists don't like to say the word depression because it has a psychological effect if you know ben bernanke do a press conference they say you know folks we've been in the depression since two thousand and seven that makes people want to say more the liquidity trap gets worse you know consumer sentiment may decline so they they like to engage in happy talk and sort of ignore the fact and then the media goes along with that because they have no you know we're all the way of challenging that but you know you have to call it like you see it and when you have as zero interest rates for six years below trend growth for six years i don't care what he says that's a depression ok well you mentioned ben bernanke and he believes policies are working any points to the stock market making new all time highs as proof that he's

doing a good job now at the on the other side of the aisle you could say you look at the price of gold and it's been falling recently and they point to that again they're saying look this is proof that what we're doing is correct so they're using this dichotomy of stocks versus gold saying that the proof of their policies are correct so they're now looking at the below trend line growth and looking at the unemployment they're not looking at the collapse in wages they're not looking at the stuff that actually matters to people a day to day basis they're looking at these two data points and they make a conclusion your thoughts i think actually they are looking at it and they're scared to death but they won't talk about it for the reason i mentioned don't underestimate the extent to which this is really this is propaganda this happy talk the big thing is going on is you know the fed can make the money supply would ever they were there they increased to four hundred percent in the last four years but the problem is velocity is the quantity of losses the turnover of money the loss of the is the psychological and the behavioral phenomena if i feel good i might spend

more money if i don't feel so good i might stay home and watch t.v. so what the fed has to do they have to make me and you and everyone else spend money they have to make us. you know good so they don't want to talk about all the things you mention that you're exactly right you know food stamps there are states that were approaching fifty million americans on food stamps twenty million americans unemployed or underemployed ten million plus americans on disability disability the new unemployment you know when you're hard or weeks from now you say oh gee my back hurts and you go on disability for the rest of your life household income for personal income flat this is the real america this is what's going on it's a rich situation but they want to point to stocks and say oh gee look happy days are here again so don't they they understand all the indicators they have all that they got of secret data we're all looking at the same data the question some people are willing to talk about it policymakers are not because they're afraid of discouraging people changing sentiment or in their view making matters worse so this is a big propaganda exercise has to be the american people and i think people around the world all right well up until recently jim you've had the gold vigilantes in

the summer vigilantes kind of out there buying gold and sober and the price over the past decade has done well and to the extent that it's better to check provide some checks and balances to what is going on in the federal reserve system but now the price of gold is down it's down sharply silver is down sharply so what are we what we what are we saying about the price of gold today in terms of how the suspended into the picture is the bull market on what are your thoughts jim well right i mean that's gold as you know twelve years in a row it's five hundred percent the last ten years however it's down about thirty percent in the last two years so gold has come up sharply we all know that but here's the way i think about it. partly gold actually never changes gold is the numerary goes the way you measure everything else and you say when you say gold is up or down the way i think about a gold constant and the dollar is up or down so when the dollar price of gold is down which it is what that tells me is the dollar is getting stronger that's very

bad news for the fed because the fed wants a weaker dollar the fed wants inflation a strong dollar equates to deflation. so just hold gold constant think about the dollar price of gold coming down which it has that means that the dollar's actually getting stronger that means the fed's policies are working deflation is the essential banks' worst nightmare and that's what we're saying so when i see the dollar price of gold come down from one thousand nine hundred late two thousand and eleven to you know thirteen fifty or so today what that tells me is deflation is prevailing over inflation and the fed's got a chart of the fed's got to print actually more money now you sort of have these two caps you have the inflation these does and i'm not in this camp where you say ok jay you take the fed chief eight hundred billion to three trillion on its way to four trillion on its way to five trillion which is what's going on that has to be inflationary at the end of the day and i think it does but we're actually not seeing the inflation and here's here's how to think about it we have so many people look at the snapshot they're looking at the time series of data and sanjay

inflation's well behaved it's about one percent you know a little higher sometimes a little lower other times but that's like looking at a car that just drove off a cliff looking at a snapshot you know look at a snapshot of a car that just drove off a cliff there's something wrong with the car i mean there's not a scratch on it but you know how it's going and it's going to end in a flaming wreck and so i think we have to think about the dynamic of the forward a little bit and say what's actually going on here well what we have are two things going on at once you had deflation which is perfectly natural it's what you would expect in a depression and depression means you know among other things people are deal averaging when you deal average of sell assets when you sell assets prices go down that makes you know that makes things worse and then they go down more so that's the natural deflationary dynamic that one should expect against that we have inflation from the fed money printing which is sort of artificial policy induced so these two forces are pushing against each other deflation inflation at the same time so it's impossible as to make precisely but it rough numbers we might have sort of four percent deflation and five percent inflation at the same time which

net out to about one percent inflation in the c.t.r. but that's not a stable series that's actually two forces pushing. it's each other so think of it as a fault line we have an earthquake it would you have a fault line phone lines don't move very much most of the time but every now and then they snap and you have an earthquake and it's messily destructive so that's what's building up now the question is when is it going to snap and which way would go will tip to deflation or tip inflation we don't know that but we know will break eventually and investors need to be prepared for both now if it tips to inflation then the inflation is deserve indicated gold goes you know two thousand three thousand eventually you know my medium term forecast is up to seven thousand dollars an ounce but if it tips the deflation that's a completely different dynamic now gold could actually go down along with everything else but at some point gold will skyrocket because the fed will make it skyrocket jim you know in the two thousand and seven two thousand a crisis the system broke lehman collapsed credit for us and the central banks

printed a lot of money they came in to save the day well here we are five years later stock markets at a new all time high bond market at a three hundred year highs so why does the fed just stop printing one of they go back to a normalized market why are they continuing breast feeding this market because the stock market would collapse if they did and they know that what's going on in the face trying to create what's called a wealth of fact and i think we know there's a pretty well known phenomena more than fifty percent of the assets of the american people are into asset classes housing and stocks so the wealth effect basically is if my net worth goes up of the net worth of the american people goes up you feel better and you spend more if you spend more you get the glossy going to get nominal g.d.p. growing and try to create the sustainable growth path which we haven't seen we have seen in this and this depression all so the fed's been trying to do this by printing money the money has to go somewhere it's not going into velocity it's not going into the consumer price index it is going into the asset classes basically stocks and housing so they go up and what the fed hopes is that people feel richer

they spend more ball that's happening is they they stocks are going up and people are putting more money. the end of the stock market they're not actually spending more we're not seeing the change behavior and consumption and investment we're saying it in the stock market so all the really doing is creating another as a bubble but what they hope is that eventually changes the psychology of people start spending money that's where the trying to get by the way we've seen this movie four years in a row member two thousand and nine green shoots two thousand and ten the recovery summer two thousand and eleven you know that was going to be the year we broke through two thousand and twelve it hasn't worked for years in a row it's not going to work now it will start to fade again and then the fed will print more money they they have no way out of this max there is no exit in this policy all right jim record so what i don't understand or explain to me a little bit better here we've got a situation with you saying there's no exit strategy well at the same time the indebtedness is reaching all time highs new margin debt the stock market household that corporate that bank that isn't the fed at this point printing money just to

pay the debt because debt as a line item is gone from fifteen twenty percent of more of these taxes are going to say isn't that kind of like the recipe for hyperinflation well it's the recipe max but there's one missing ingredient in the recipe which is velocity you know the turnover of money the psychology is not there people that we are in a liquidity trap i talk to some younger americans people in their twenty's you know they're saving money maybe for a down payment on the house or something and what bernanke you want to do is say look i'm going to pay you nothing on your savings and if you want to make some money you better go into the stock markets are trying to drive people into the stock market but the people i talk to say well no i think stocks are too risky maybe it's a bubble i'm going to say more in other words if i can't get any return on my savings i have to save more to get a downpayment on the house so rather than sort of breaking out of the liquidity trap by driving people into risky assets and pumping up the stock market which is what the fed wants to do sure the stock market is going up because of margin dad and institutions have to be allocated they don't want to underperform so that's

definitely going on but meanwhile down to the level of the everyday american so a lot of them are saving more because they can't get. and in return so you're actually making the liquidity trap worse so this is the law of unintended consequences as far as the debt story is concerned you know it's a stick and says to tell two cities we have fairly low interest on the treasury debt although the amount this huge is sixteen trillion dollars so even a point on sixteen trillion dollars a question a lot of money but meanwhile over here in the consumer sector you know a lot of consumer rates are ten fifteen twenty percent and heaven help you if you you know you're five days late on a payment they jacked it up to twenty five or thirty percent so people can't get out from under that they're struggling savings by the way or near an all time low they went up a little bit on a precautionary basis after the panic of two thousand and eight they've come back down to say was a really low debt to g.d.p. still going up that the debt crisis is nowhere near over the fed printing just keeps it from collapsing but it doesn't solve it all right jim rickards that's all

the time we have for part one of this interview will see you again real soon on part two thanks for being on the report today thanks max all right that's going to do it for this edition of the kaiser report with me max keiser and stacy herbert and i guess jim records author of currency wars for part one of the interview on the next episode will be talking to jim about currency wars the yen euro and to the dollar system if you'd like to send us an e-mail please do so at kaiser report r.t. t.v. dot or you next time ask on the same value zero. well

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