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Posts Tagged ‘Federal Reserve’

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

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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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Stock World Weekly

Here’s the latest Stock World Weekly Newsletter, New Year’s Edition.

Feedback welcome — please leave comments, we value your input. - Ilene

BEN DEVIL

Picture credit: William Banzai7


For Stock World Weekly archives, click here.   


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AAII: BULLISH SENTIMENT HITS 6 YEAR HIGH

Courtesy of The Pragmatic Capitalist

This morning’s AAII sentiment survey is consistent with just about every other sentiment reading of late – investors are wildly confident that stocks will be higher in the coming 6 months.  The optimism is almost near universal. The following chart tells the story of this bi-polar market.  On August 26th, just days before the market bottom, the bullish sentiment hit just 20.7% – no one thought stocks were set to rise.  Now, after a 20% rise in equities the consensus is uniformly positive.

Charles Rotblut of AAII elaborated on this morning’s results:

“Bullish sentiment, expectations that stock prices will rise over the next six months, rose 13.1 percentage points to 63.3% in the latest AAII Sentiment Survey. This is the highest level of optimism since November 18, 2004. This is also the 16th consecutive week that bullish sentiment has been above its historical average of 31%, the longest such streak since 2004.

Neutral sentiment, expectations that stock prices will remain essentially flat, declined 2.3 percentage points to 20.3%. This is a six-week low for neutral sentiment and the 20th consecutive week that neutral sentiment has been below its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 10.7 percentage points to 16.4%. This is the lowest level of pessimism since July 14, 2005. It is also the 11th time in the past 12 weeks that bearish sentiment has been below its historical average 30%.

The spread between bullish and bearish sentiment is currently at +46.9 points. This is the most positive bull-bear spread since April 15, 2004, when it reached +50.0 points. A wider differential was recorded on March 5, 2009, when the bull-bear spread fell to -51.4 points.

Bullish sentiment is more than two standard deviations from its historical mean, making it a statistical outlier. In simpler terms, bullish sentiment is running red hot. In fact, the current reading is the 18th highest since the survey started in 1987. Higher readings were recorded in 1987, 2000, 2001, 2003 and 2004. Such high levels of optimism have been correlated with a decline in the S&P 500 over the proceeding 24 weeks, though the magnitude of the declines have varied.  A spreadsheet showing all of the survey’s historical data is attached.”

Source: AAII 


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Zero Hedge

Is The Fed Fabricating Loan Creation Data?

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

One of the more bullish "fundamental" theses discussed in recent weeks, perhaps as an offset to the documented record collapse in mortgage origination - because without debt creation by commercial banks one can kiss this, or any recovery, goodbye - has been the so-called surge in loans and leases as reported weekly by the Fed in its H.8 statement. Some, such as the chief strategist of retail brokerage Charles Schwab, Liz Ann Sonders, went so far as to note that this is, to her, the "...



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Phil's Favorites

Sticker shock at the steak house; beef prices highest in 27 years

One place you'll find inflation--meat prices.

Sticker shock at the steak house; beef prices highest in 27 years | kens5.com San Antonio

By Doug Miller / KHOU 11 News and The Associated Press

Edd Hendee reached into the chilled glass case containing cold cuts of steak, the classic Texas entrée upon which he built his restaurant and his fortune, proudly showing off his merchandise like a jeweler displaying his diamonds.

“This is a center cut filet,” he said. “It’s the very best filet you can possibly buy. And that’s why it’s expensive.”

And lately, at the Taste of Texas restaurant in west Houston, it’s become even more expensive.

“When the price goes from just under $20 a pound to ...



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Chart School

Disturbing Charts: New Update

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

I find the following charts to be disturbing. These charts would be disturbing at any point in the economic cycle; that they (on average) depict such a tenuous situation now ? 58 months after the official (as per the September 20, 2010 NBER BCDC announcement) June 2009 end of the recession ? is especially notable.

These charts raise a lot of questions. As well, they highlight the "atypical" nature of our economic situation from a long-term historical perspective.

All of these charts (except one, as noted) are from the Federal Reserve, and represent the most recently updated data.

The following eight charts are from the St. Louis...



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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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Sabrient

What the Market Wants: Positive News and Stocks at Bargain Prices

Courtesy of David Brown, Sabrient Systems and Gradient Analytics

Last week’s market performance was nasty again, especially for the Small-cap Growth style/cap, down 4%.  Large-caps faired the best, losing only 2.7%.  That’s ugly and today’s market seemed likely to be uglier today with escalating tensions over the weekend in Ukraine. 

But once again, positive economic trumped the beating of the war drums. Retail Sales jumped up 1.1% over a projected 0.8% and last month’s tepid 0.3%, which was revised up to 0.7%.  While autos led, sales were up solidly overall.  Business inventories were about as expected with a positive tone.  Citigroup (C) handily beat estimates to add to the morning’s surprises.  As a result, the market was positive through most of the day, led by the DJI, up 0.91%, and the S&P 500, up 0.82%.  NASDAQ had a less...



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Digital Currencies

Facebook Takes Life Seriously and Moves To Create Its Own Virtual Currency, Increases UltraCoin Valuation Significantly

Courtesy of ZeroHedge. View original post here.

Submitted by Reggie Middleton.

The Financial Times reports:

[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process. 

The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...



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OpTrader

Swing trading portfolio - week of April 14th 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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Market Shadows

Winning: Defined as Losing Less

By Paul Price of Market Shadows

Market Shadows Excelled – With a 1.36% Weekly Decline

In the land of the blind, the one-eyed man is King. Our Virtual Value Porfolio took on that role this week as we lost a modest 1.36% of our value while the DJIA, S&P 500 and Nasdaq Composite dropped from 2.35% - 3.10%.

We remain bullish despite the shaky end of week sentiment. Our original $100,000 now totals $145,058 including our 2.8% cash reserve.

 ...



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Stock World Weekly

Stock World Weekly

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

Here is the new Stock World Weekly. Please sign in with your user name and password, or sign up for a free trial to Stock World Weekly. Click here. 

Chart by Paul Price.

...

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Option Review

Bearish Prints In DDD Put Options

3D Systems shares had been in positive territory earlier in the session, up as much as 4.2% to touch an intraday high of $50.85. The stock bounced off a low of $47.17 in the early going, a new six-month low for the share price and a more than 50% drop from DDD’s record high of $97.28 reached back on January 3rd. Shares managed to stay in the green for much of the session before succumbing to selling pressure this afternoon. Options expiring next week suggests at least one trader is positioning for further weakness in the near term.

The 17Apr’14 $47 puts traded more than 2,000 times this morning against previously existing open interest o...



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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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Pharmboy

Here We Go Again - Pharma & Biotechs 2014

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

Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.

And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference.  Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014?  The Biotech ETF beat the S&P by better than 3 points.

As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...



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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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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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