Kudos to Ben Bernanke and Tim Geithner for orchestrating one of the great public relations rallies of all time – certainly the best spin-job I can remember. Why do I say “spin job?” Well, it seemed obvious to me that during the entire rally off the March lows, the economic news wasn’t getting better, yet somehow America was force fed the term “green shoots” and latched onto it as a sprig of hope for the economy. Never mind that it’s not even really up for debate that the economy continues to get worse, the Green Shoots Brigade managed to get people to gorge themselves on the concept of the second derivative – the slowing proliferation of “badness.” Of course, when you fall off of a cliff, your rate of decent slows at some point – when you hit the ground – unfortunately, you’re still lying on the ground with a body full of broken bones – you don’t get up and start running again.

The public was then somehow convinced that “less badness” is the same as “more goodness” and the fear of missing a rally resulted in people drinking the KoolAid and buying stocks with both hands. After the Administration managed to quite skillfully (and I actually mean this – no sarcasm!) leak out the “Stress Test” results over a period of a few weeks, determining that banks needed tens of billions of dollars in capital, the banks in question managed to raise the funds via secondary offerings, while at the same time seeing their stock prices rally. A truly masterful controlled release of bad news which was somehow spun into good news.

Bernanke and Geithner managed to massage market sentiment to a point where it seemed nothing could harm the market. So back to the spin-job: after the bank stocks were talked up 100% off their lows (oh – I forgot that during this rally they released Q1 earnings which were pumped up by freebie PnL generated by sloppy AIG unwinds, and, in Goldman Sachs’ case, by simply erasing the month of December in which they lost money), the banks sold tens of billions of dollars of new stock to eager investors.

Then Bernanke released the hounds today, noting quietly that the Fed had downgraded its economic forecasts. But wait – how can the Fed be downgrading it’s forecasts if we’re being bombarded with “green shoots?” It comes down to a very simple recipe for a stew I like to call “plug your customer.”

1) Take the truth and bury it for a while
2) Tell your customer (in this case, private capital) that things are looking great, and that everything will be fine. In the words of Dealbreaker, “Nothing is fucked.” Serve the KoolAid
3) Once everyone has drunk the KoolAid, have the banks that need capital sell ample amounts of new stock to the eager and happy public, who are now drunk on Kool Aid and high from smoking green shoots
4) When the capital raising is over, release your new economic forecasts, aka, THE TRUTH:

Which brings us to the new forecast, released today, now that the capital raising is done:

In case those numbers aren’t clear to you – the Fed’s new BEST CASE 2009 GDP forecast is equal to their prior WORST CASE forecast. The Fed’s new BEST CASE scenarios for 2009 and 2010 unemployment are both worse than their prior WORST CASE scenarios (don’t even worry about the fact that the 2009 unemployment forecast is already worse than the “really bad” case scenario in the successfully completed “Stress tests.“)

So much for green shoots – I guess now that the Fed has attracted the private capital it desired for the market, it decided there was no more need to perpetuate the lie. SOLD TO YOU, SUCKA! Enjoy those 1.25 BILLION new shares of BankAmerica! Have fun with those 300+ million shiny new shares of Wells Fargo! Green shoots!! Wait – I think that should be meeker, with a question mark, instead of an exclamation point: like Green shoots? Anyone? Anyone? Beuller?

-KD

full disclosure: short SPY

p.s. – I’ve already made my lack of faith in Fed forecasts clear, but they need to at least be consistent don’t they?