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Posts Tagged ‘Federal Reserve’

Wednesday Worries – Will GDP Be Revised Down Again?

Does this look healthy to you?

We did manage to pull out of a tailspin back in 2011 – the last time our GDP went negative but, funny story – in July of 2011, the S&P fell from 1,350 to 1,100 by August 9th and it gyrated between 1,100 and 1,200 until October when the Fed's "Operation Twist" (because "Operation Screw the Poor" got bad test scores) gave us a boost.

Notice how this post picks up right where yesterday's post left off – I'm clever that way!  Yesterday we had the chart that showed us that 10% of our GDP ($1.5Tn) is the result of Fed fiddling and, without it, the GDP would be right back at those 2009 lows.  Whether or not you THINK QE will ever end, you sure as hell better have a plan for what you will do in case it does!  

Russell Investments put out their Economic Indicators Dashboard yesterday and it's a nice snapshot of the where the economy is.   

The lines over the boxes are the 3-month trends and, thanks to the Fed, 10-year yeilds are just 2.48% and that's keeping home prices high (because you don't buy a home, you buy a mortgage).

Inflation is creeping up and expansion (today's topic) is negative and getting lower.  Meanwhile, consumers remain oblivious as the Corporate Media fills them with happy talk.  Meanwhile, this BLS chart (via Barry Ritholtz) says it all as manufacturing (good) jobs continue to leave our country at alarming rates:

Almost all of the growth spots are from fracking with a little auto production picking up as well.  Overall, 1.6M net manufacturing jobs have been lost since 2007 and, much more alarming, the median household income for those lucky enough to still have jobs is down almost 10% over the same period of time.  

In other words, if it wasn't for Fed Money, we'd have no money at all!  In yesterday's Webinar (replay available here) we talked about how the Fed is like a…
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Tempting Tuesday – Weak Dollar Props Up the Markets

UUP WEEKLYWhenever the manipulators need to boost the markets, they just crash the Dollar.  

And what a dive we've had!  As you can see from Dave Fry's Chart, the Dollar is down 7% since last summer and down 2.5% this year and that keeps stocks and commodities 2.5% higher – because we buy them with Dollars.  

Keep in mind, at the same time you are buying IBM shares for $200, someone is buying the same shares for 20,400 Yen and another guy is buying them for 340 British Pounds and yet another guy is buying them for 280 Euros.  

It's obvious that, if the value of the Pound or the Yen or the Euro changes, the price of IBM in those currencies will change to reflect the currrency valuation but Americans tend not to realize the same thing happens when the Dollar gets stronger or weaker too.  Once you do realize this – you have a huge advantage in trading the Futures (and we have a Live Futures Workshop this afternoon at 1pm).

SPX WEEKLYThe Fed's easy-money policies keep the Dollar weak (because we're printing another Trillion of them each year and, in this economy, no one is using them – ie. no demand) and that has goosed the market by 7% since last summer, when the S&P was about 1,650 – about 10% lower than it is now.  

That means that 75% of the gains in the S&P since last summer have been the result of a weak currency and have noting to do with a "strong" economy.  Now THAT makes sense, doesn't it?

"THEY" had to tank the Dollar to get us over the 1,600 level, which was a very key technical off our consolidated bottom at 800 during the crash.  It's no coincidence that we were hitting resistance there in May and pulling back to 1,560 and looking weak in July when, suddenly, the Fed went into a new round of crazy, which led to 6 months of fairly steady value erosion for every single Dollar you have worked for and saved your entire life.  

It's kind…
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A Thinly Veiled Bail

A Thinly Veiled Bail

By Ilene at Phil’s Stock World, with Lee Adler of the Wall Street Examiner (many thanks to Lee!)

The ECB is borrowing U.S. Dollars from the Fed to bailout European banks. And that is in addition to the Long Term Refinancing Operation (LTRO)

However, the "borrowing" is not called "borrowing."  It’s called a "temporary U.S. dollar liquidity swap arrangement."  Yet it is really borrowing because it’s going massively in one direction for the purpose of giving the ECB Dollars to lend to European banks, so the ECB can avoid lending more Euros. The ECB doesn’t want to tarnish its "inflation fighting" reputation and further devalue the Euro. Instead, the Fed is taking billions of Euros as collateral for the Dollar swap.  

As Gerald P. O’Driscoll Jr., former vice president and economic advisor at the Federal Reserve Bank of Dallas, and senior fellow at the Cato Institute, wrote in the WSJ (The Federal Reserve’s Covert Bailout of Europe): 

"The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities."

U.S. Banks and financial institutions do not want to lend European Banks more Dollars, and it would look bad for the Fed to do this unpopular lending directly, so the Fed has found an indirect route.  

"The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan."

In exchange for Euros as collateral, the ECB gets non-technically loaned Dollars which it then lends to European banks. The additional Dollars flowing to the EU banks enable the ECB not to release more Euros to the EU banks and into circulation. According to O’Driscoll, this "Byzantine financial arrangement" was designed perfectly to confuse people. 

"The Fed’s support is in addition to


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The Commodity Bubble

Courtesy of SurlyTrader 

In the future they might coin this the “Bernanke Effect” or maybe the great commodity bubble of 2011.  The truth is that commodity prices are rising…dramatically.  You might have started to notice this disconnect in your grocery store shopping or in gasoline prices, but if you were to ask our government they would tell you that a basket of goods consumed (CPI) is rising modestly.  How modest do these numbers appear to you?

Sugar and Corn? Those are luxury goods.

If the basic ingredients to food are skyrocketing, then prices of food will eventually have to keep pace which will directly hurt consumers.

Of the 853 ETF’s that I looked at, which unleveraged funds do you think had the greatest return over that same time period?  It is not a trick question: 

Are you noticing a theme?

My conclusion is simple:  this time is NOT different.  Commodity prices cannot go up forever and China will not continue to support the market regardless of prices.  What is this “Bernanke Effect” doing to farmland prices?  Well, according to a survey by Farmer’s National Company:

“non-irrigated crop land in central Kansas averaged $3,000 an acre, up 50 percent since June…

Crop prices have seen an extraordinary run since early July. A bushel of wheat priced about $4 a bushel on July 4 is now more than $8.50. Other crops have experienced similar increases.

As the land generates more income, it puts more cash in the pockets of the most likely buyers, nearby farmers. It also provides an attractive return for investors who then rent it out to farmers.

The result: Auctions are drawing twice the number of bidders as before, said area agents.”

As with all hot speculation, the commodity run will surely come to an end and will probably have repercussions for all financial markets.  We should have learned by now that large financial dislocations tend to not occur in isolation. 


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GRAPES OF WRATH – 2011

Excellent article comparing current situation with lead up to the Great Depression.  Well worth reading. – Ilene 

Courtesy of Jim Quinn at The Burning Platform

“And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.” – John Steinbeck – Grapes of Wrath

  

John Steinbeck wrote his masterpiece The Grapes of Wrath at the age of 37 in 1939, at the tail end of the Great Depression. Steinbeck won the Nobel Prize and Pulitzer Prize for literature. John Ford then made a classic film adaption in 1941, starring Henry Fonda.


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Ron Paul slams Fed’s bond-buying program; Political Pressure on Fed Mounts

Courtesy of Mish

MarketWatch reports Paul slams Fed’s bond-buying program

Outspoken Federal Reserve critic Rep. Ron Paul, R-Texas, slammed the central bank’s latest $600 billion bond-buying program on Wednesday, saying it and near-zero interest rates haven’t led to job creation in the United States.

“Over $4 trillion in bailout facilities and outright debt monetization, combined with interest rates near zero for over two years, have not and will not contribute to increased employment,” Paul said at a hearing of a House Financial Services subcommittee he heads.

“Debt monetization” is a reference by Paul and other Fed critics to the Fed’s latest bond-buying program — a characterization rejected by Fed Chairman Ben Bernanke.

In essence, Paul is charging that the central bank is enabling profligate spending by the government. The term “debt monetization” is a buzzword for how some poorer countries conducted policies in the post-World War II era.

Political Pressure on Fed Mounts

WSJ’s Sudeep Reddy reports on concerns the Federal Reserve could be facing political pressure from Congress, as Rep. Ron Paul holds the first hearing of a new Fed oversight committee. Separately, Fed Chairman Bernanke updates Congress on the economy.

If the above YouTube does not play here is a link: Rep. Ron Paul Ignites Fed Worry

Mike "Mish" Shedlock


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The Food Bubble

H/t Barry Ritholtz, Did the Fed Cause Unrest in the Arab World?

Visit msnbc.com for breaking news, world news, and news about the economy


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How the US Government Manipulates Inflation Data

The PCE bothered me yesterday.

The Government told us that the PCE core price index for December was 0% – no inflation at all.  I found that to be incredible – as in not credible at all and then Tuscadog asked me how long the Bernank could keep justifying his rampant money printing with fake government data, to which I responded: "I had many derogatory things to say about that but I was literally so sickened by that BS that I couldn’t bring myself to comment on it so I just left it alone but it’s a very sad joke that our government can tell us that there was no inflation in December while the whole planet is falling apart, isn’t it?"  

Fortunately, there was a helpful article in the WSJ by Brett Arends that pointed out that the way the government justifies their low inflation figures is through "substitution and hedonics," a topic expert Government BS detector, Barry Ritholtz had touched on as well.  As Barry says:

Hedonics asks the question: "How much of a product’s price increase is a function of "inflation," and how much is quality improvement?" Thus, the entire late 1990′s concept of Hedonics is premised upon a flawed assumption: that quality is static.  Hedonics is a variation of the old trick of comparing the present with the past, instead of the present. Measuring quality improvements is a distraction from the real measure of inflation: the purchasing power of a dollar.

 Hedonics opens the door to producing magical results: a lower inflation rate with generally rising prices, a higher growth rate although the economy may be weaker, and a higher productivity number, although productivity would have been declining without the hedonic imputations.

What BS, right?  Well, when I get mad, I do research and when my research uncovers something – I make an electronic puppet show

Forward this to your friends and Congresspeople – lets try to get our government to get real!  


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Bill Fleckenstein: The Race To the Bottom Will Be Won By the Dollar

Courtesy of Chris Martenson

Bill Fleckenstein"This printing money is going to lead to huge trouble. It’s going to lead to higher interest rates. It’s going to lead to more inflation, and at some point there is going to be a train wreck in the currency and the bond market."

Market commentator and money manager Bill Fleckenstein sat down for a recent interview with ChrisMartenson.com and excoriated the Fed and the monetary policy it’s pursuing. He and Chris discuss the factors that enabled Bill to be one of the first to accurately identify and warn of the housing and credit bubbles – and how history is now repeating itself via the profligate printing of US dollars. The interview covers a wide range of topics meaningful to the investor trying to make sense of where things are headed from here – including central banking culture, bubble psychology, high-frequency trading, inflation/deflation, and the true relative value of the dollar vs the Euro.

Click the play button below to listen to Chris’ interview with Bill Fleckenstein:

Download/Play the Podcast

Read the Transcript of the Podcast

Report a Problem Playing the Podcast

In this podcast, Bill sheds light on why: 

  • The culture of the Fed reinforces a belief in its infallibility. This blinds it to the fact that its interventions cause market players to adopt irrational behavior leading to misallocations of capital that eventually need to be corrected by the system (e.g., busts). 
  • Correlation between asset classes is the highest it’s been in 60 years. This is a result of the Fed flooding the market with liquidity. It makes it very hard for investors to be anything besides speculators.
  • The SEC has been asleep at the switch for the past 15 years, leaving the system vulnerable to exploitation – of which HFT programs are just the latest example.
  • A funding crisis looks inevitable: At some point the bond market or the currency market will revolt, resulting in a weak dollar and increasing bond rates – despite whatever the Fed wants.
  • It’s perverse for the US to be rewarded for using a printing press indiscriminately without making any fiscal changes, while Europe is painfully adopting austerity and getting penalized.

In Part 2: Outlook for 2011 (for enrolled ChrisMartenson.com members - click here to enroll), Bill gets specific about what he predicts will happen in the bond and currency markets, as well as his specific outlook for 2011.


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12 Economic Collapse Scenarios That We Could Potentially See In 2011

Courtesy of Michael Snyder at Economic Collapse 

What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis.  The United States, Japan and most of the nations in Europe are absolutely drowning in debt.  The Federal Reserve continues to play reckless games with the U.S. dollar.  The price of oil is skyrocketing and the global price of food just hit a new record high.  Food riots are already breaking out all over the world.  Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time.  Most Americans have no idea that a horrific economic collapse could happen at literally any time.  There is no way that all of this debt and all of this financial corruption is sustainable.  At some point we are going to reach a moment of "total system failure".

So will it be soon?  Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare.  Once this thing implodes there isn’t going to be an opportunity to have a "do over".  We simply will not be able to put the toothpaste back into the tube again.

So we had all better be getting prepared for hard times.  The following are 12 economic collapse scenarios that we could potentially see in 2011….

#1 U.S. debt could become a massive crisis at any moment.  China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated.  Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates.  If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.

#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have.  Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743"

Thank you for you time!

 
 

Zero Hedge

Argentina Bonds/Currency Tumble As Delegation Snubs Mediation

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

With 2 days until the 30-day grace period for 'negotiating' the already defaulted upon bonds is over and Argentina is once again dumped from the public markets, the demands for a "continuous mediation" by Judge Griesa appears to have fallen on dear ears. Bloomberg reports that the Argentina delegation will not meet with the mediator today.. and Argentina bonds are tumbling (and CDS soaring). Markets are implying around 45-50% chance of a default being triggered, which, as Jefferies noted last week, seems low. Argentina's black-market peso (blue dollar rate) weakened to 12.75 (just shy of its weakest ever at 13.00) ...



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Chart School

Vehicle Miles Driven: A Structural Change in Our Driving Behavior

Courtesy of Doug Short.

The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through May.

Travel on all roads and streets changed by 0.9% (2.4 billion vehicle miles) for May 2014 as compared with May 2013 (see report). The less volatile 12-month moving average is up 0.07% month-over-month. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) is down 0.01% month-over-month and down 0.3% year-over-year.

Here is a chart that illustrates this data series from its inception in 1970. I'm plotting the "Moving 12-Month Total on ALL Roads," as the DOT t...



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Phil's Favorites

No BBC Video Removal Scandal After All; Evidence of Military Planes Shadowing MH17 Mounts

Courtesy of Mish.

On July 23 the BBC deleted a video report from correspondent Olga Ivishina regarding the crash of MH17. This has caused quite a stir in the blogosphere because the deleted video contained eyewitness reports of military aircraft flying on the same day, shadowing Mh17.

Here is the deleted video from cache: ?????????? ????? MH17 ?? ?? ?? ? ??????? ???? 23 07 2014, LQ 



Global Research Canada has some interesting translation clips in Deleted BBC Report. “Ukrainian Fighter Jet Shot Down MHI7″, Donetsk Eyewitnesses.

BBC's Initial Response

I found dozens of references to the removal, but to find BBC's rea...



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Sabrient

Sector Detector: Bold bulls dare meek bears to take another crack

Courtesy of Sabrient Systems and Gradient Analytics

Once again, stocks have shown some inkling of weakness. But every other time for almost three years running, the bears have failed to pile on and get a real correction in gear. Will this time be different? Bulls are almost daring them to try it, putting forth their best Dirty Harry impression: “Go ahead, make my day.” Despite weak or neutral charts and moderately bullish (at best) sector rankings, the trend is definitely on the side of the bulls, not to mention the bears’ neurotic skittishness about emerging into the sunlight.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, incl...



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OpTrader

Swing trading portfolio - week of July 28th, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW in the comments below each post. 

Our weekly newsletter Stock World Weekly is ready for your enjoyment.

Read about the week ahead, trade ideas from Phil, and more. Please click here and sign in with your PSW user name and password. Or take a free trial.

We appreciate your feedback--please let us know what you think in the comment section below.  

...

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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Digital Currencies

BitLicense Part 1 - Can Poorly Thought Out Regulation Drive the US Economy Back into the Dark Ages?

Courtesy of Reggie Middleton.

An Op-Ed piece penned by Veritaseum Chief Contracts Officer, Matt Bogosian

This past weekend (despite American Airlines' best efforts), Reggie and I made it to the Second Annual North American Bitcoin Conference in Chicago. While there were some very creative (and very ambitious) ideas on how to try to realize the disruptive Bitcoin protocol, one of the predominant topics of discussion was New York Superintendent of Financial Services Benjamin Lawsky's proposed Bitcoin regulations (the BitLicense proposal) - percieved by many participants at the event as an apparent ...



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Option Review

Starbucks Options Volume Rises Ahead Of Earnings After The Bell

Volume in Starbucks options is running approximately three times the average daily level for the stock as of 1:15 p.m. ET ahead of the company’s third-quarter earnings report after the close. Shares in the name are up roughly 1.0% just before midday to stand at $79.95. Traders of SBUX options today are more active in calls than puts, with the call/put ratio hovering near 2.0 as of the time of this writing. Much of the volume is in 25Jul’14 expiry options contracts, most notably in the $80 and $83 strike calls which have traded roughly 3,350 and 2,550 times respectively and in excess of existing open interest levels in both strikes. A portion of the volume in the $80 and $83 calls appears to be part of a spread trade.

...

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Market Shadows

Danger: Falling Prices

Danger: Falling Prices

By Dr. Paul Price of Market Shadows

 

We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about." 

All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...



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Pharmboy

Biotechs & Bubbles

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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Promotions

See Live Demo Of This Google-Like Trade Algorithm

I just wanted to be sure you saw this.  There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.

If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.

Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.

Follow this link to register for their training webinar where they’ll demonstrate the tested and proven Algorithm powered by the same technological principles that have made GOOGLE the #1 search engine on the planet!

And get this…had you done nothing b...



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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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