Tag Archives: federal reserve

Post-FOMC Minutes Clown Show

By Biiwii

[edit] Aside from the market talk and very real view that declining confidence in centrally planned policy is key to coming market events, this post is for fun. Jeez, lighten up.  I know some readers just adore centralized policy making and interest rate manipulation, but the Fed has proven already that it does more harm than good.  The “Great Recession” doesn’t happen without the policy excesses that fomented it. 

Going on 7 years into an economic recovery/expansion, blaming global sources while seeing deceleration in domestic manufacturing, exports and now, payrolls after not normalizing by even a crappy 1/4 point?  Yeh, that’s just peachy.  I am all for being bullish if that is what is on tap.  Bad policy does not mean stock market bearish on any given time frame.  But it seems that Fed apologists have very constricted time frames by which they frame their views.  There is a thing called a big picture and it is littered with negative symptoms of centrally planned economies, both in the US and world-wide.

I am not advocating a Luddite-like return to bartering or even the gold standard.  I am simply saying that constant policy intervention is a sign that something is not right.  This is a global situation, but speaking of the US, which is my home, this chart says all it needs to say.  A large distortion has been bred into the market by abnormal policy.  This could prove very bearish or hyper bullish.  We just don’t know yet.  It’s all just prices and asset appreciation, after all.

irx and spx

Thus ends this [edit], which went on 10x longer than anticipated.

Almost as entertaining as the market’s reaction to the event itself is today’s reaction to what a bunch of clowns pretending to be in control of the economy had to say about the economy and by extension their policy supposedly governing same.

Market participants, black boxes and substance abusers alike might want to keep a couple of things in mind; 1) inflammatory news events are fleeting in their effects (and look at how quickly the gold sector, one standing to gain from a weak economic backdrop and its implications for policy, head faked up and reversed down) and 2) after the FOMC Minutes release in September the market cheered and zoomed higher after the Fed punted.  It then immediately reversed into a downside leg that became the bottom re-test.

Basically, the same dynamics are in play.  The economy is starting to suck wind, rate hike hype is fading and for the moment the market is choosing to see this as positive.  Just like it did for the moment in September.  Maybe it’ll be different this time.  Or maybe not.

Continue reading Post-FOMC Minutes Clown Show

New Fed Operating Framework Explained…

By Michael Ashton

The New Fed Operating Framework Explained With Cheese

This will be a brief but hopefully helpful column. For some time, I have been explaining that the new Fed operating framework for monetary policy, in which the FOMC essentially steers interest rates higher by fiat rather than in the traditional method (by managing the supply of funds and therefore the resulting pressure on reserves), is a really bad idea. But in responding to a reader’s post I inadvertently hit on an explanation that may be clearer for some people than my analogy of a doctor manipulating his thermometer to give the right reading from the patient.

Right now, there is a tremendous surplus of reserves above what banks are required to hold or desire to hold. With free markets, this would result in a Fed funds interest rate of zero, or even lower under some circumstances, with a substantial remaining surplus.[1] In this case, the Fed funds effective rate has tended to be in the 10-20bps range since the Fed started paying interest on excess reserves (IOER).

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Will They Could They Should They?

By Michael Ashton

So now we have all noticed that the Fed eschewed tightening a week and a half ago, and we have digested all of the analysis of the “negative dots” which indicate some member of the Fed projected not just unchanged rates but actually negative rates.

(Incidentally, here is a good article in The Telegraph about Sweden’s negative rate regime. One of the observations worth pondering is that in a cashless society, there is no zero-percent floor on interest rates: normally, rates below zero percent shouldn’t be possible since someone can always earn zero percent by holding cash. Unless there is no cash. That is simultaneously a deep thought and a terrifying thought – if there is no cash, and all of your money is in electronic deposits at financial institutions, then there is no limit to how much you can be robbed of – or in popular financial parlance, no limit to the “financial repression” that can be visited upon you.)

Continue reading Will They Could They Should They?

NFTRH 362 Out Now

By Biiwii

nftrh 362As noted in the subscriber email that accompanied NFTRH 362:

“NFTRH 362 trims back down to 22 pages, but makes a lot of points in those pages. In particular, despite everything going according to the best laid plans we should realize that the bear case is not yet sealed. The opening segment talks a lot about policy involvement in markets and the stock market segment clearly shows how 2011 had a similar situation to today’s bearish situation… enter Operation Twist and a changed landscape for years thereafter. All I am saying is, let’s have open minds.”

We also update global stock markets and come to a conclusion on a relatively good shorting opportunity, and review the progress of a new and constructive signal in the gold sector (which remains in TA hell, by the way) and really try to make clear why the Gold-Silver ratio is so important to not only this sector, but global markets and even policy maker actions.

A good report that is right on for the times.  NFTRH 362 out now.

Fed Cred Dead

By James Howard Kunstler

The economy is a two-headed monster. One head is the trade in real goods and real services. The other head is the financialized traffic in swindles and frauds that surrounds banking. There is some deception and overlap about which is which. For instance so-called health care might be perceived as a real service. In fact, it’s a hostage racket, designed to victimize “patients” at their weakest, with a “protection” premium that easily runs to $12,000-a-year for a married couple, even when they aren’t sick, and vulnerable. Just see what happens if you go to an emergency room with an injury that requires six stitches. Next stop: re-po land.

Most of the remaining on-the-ground economy consists of people merely driving their cars absurd distances, burning gasoline, between exquisitely-tuned giant warehouse store operations that were designed to destroy local Main Street trade — and accomplished that, by the way, to the applause of the local citizens whose towns were destroyed (“We want bargain shopping!”).

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Now What?

By Doug Noland

Credit Bubble Bulletin

September 18 – Reuters: “The world’s leading central banks are facing the risk that their massive efforts to revive economic growth could be dragged down again, with some officials arguing for bold new ideas to counter the threat of slow growth for years to come. A day after the U.S. Federal Reserve kept interest rates at zero, citing risks in the global economy, the Bank of England’s chief economist said central banks had to accept that interest rates might get stuck at rock bottom. In Japan, where interest rates have been at zero for more than 20 years, policymakers are already tossing around ideas for overhauling the Bank of Japan’s huge monetary stimulus program as they worry that it will be unsustainable in the future, according to sources familiar with its thinking. Separately a top European Central Bank official said the ECB’s bond-buying program might need to be rethought if low inflation becomes entrenched.”

Most just scoff at the notion that there has been a historic global Bubble, let alone that this Bubble has over recent months begun to burst. Talk of an EM and global crisis is viewed as wackoism. Except that the Federal Reserve clearly sees something pernicious in the world that requires shelving, after seven years, even the cutest little baby step move in the direction of policy normalization.

Continue reading Now What?

Economic Busts Are Not Caused by Policy Mistakes

By Steve Saville

What I mean by the title of this post is that the central-bank tightening that almost always precedes an economic bust is never the cause of the bust. However, it’s a fact that economic busts are indirectly caused by policy mistakes, in that policy mistakes lead to artificial, credit-fueled booms. Once such a boom has been fostered, an ensuing and painful economic bust becomes unavoidable. The only question is: will the bust be short and sharp (the result if government and its agents stay out of the way) or drag on for more than a decade (the result if the government and its agents try to boost “aggregate demand”)?

The most commonly cited historical case of a policy mistake directly causing an economic bust is the Fed’s gentle tap on the monetary brake in 1937. This ‘tap’ was quickly followed by the resumption of the Great Depression, leading to the superficial conclusion that the 1937-1938 collapse in economic activity would never have happened if only the Fed had remained accommodative.

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Weekly Snapshot

By Alhambra Investment Partners

Top News Headlines

  1. Whipsaw market in full effect. Stocks stage a bounce-back, at least temporarily. The VIX Index is still at 26.
  2. Crude oil up over 10% for the week; biggest weekly gain in 6 years.
  3. Sanders, Trump ride anti-establishment wave.
  4. Fed rate cut to be delayed?
  5. Alaska’s Mount McKinley to be renamed Denali.

Random Thought Of The Week

Is China jumping the gun, giving the US economy a rate hike before the Fed even gets in the game? Even in the face of widespread concern about global growth Treasuries spent most of last week in search of a bid. We know China and the other emerging markets are selling Treasuries to try and defend their currencies. Hell, that was the plan, the entire reason for accumulating all those reserves. I do wonder if anyone thought that plan through. A slowing US economy isn’t going to make emerging markets perform any better.

Chart Of The Week

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Even Slower Now

By Alhambra Investment Partners

June was the for-sure liftoff point early in the year. That followed last year’s for-sure exit as March, April at the latest. Now more than a halfway through 2015 September is increasingly in doubt. They have to start somewhere even if they claim a methodical and slow pace to ensure as little disruption (in their twisted view). As I wrote yesterday, “’Intend to move slowly’ gets slower with each ‘dollar’ wave and that is the relevant motion of policy and economy quite against all the continued propaganda.

The first reaction from the Wall Street Journal is telling in that regard:

The Federal Reserve’s next policy meeting is four weeks away and officials show no clear sign of having settled on a decision about whether to raise short-term interest rates at that time.

That cannot be in light of all the certainty with which the recovery was given and not all that long ago. Last year was 5% GDP and full employment while this year stands as the gaining drip of “downside risks.” At the very least, it shows the FOMC knows nothing when it comes to this economy (and any other).

Continue reading Even Slower Now