Posts Tagged ‘FOMC’

THE MARKET IS FACING HEADWINDS

THE MARKET IS FACING HEADWINDS

Two businessmen kneeling on pavement, grabbing paper blowing in wind

Courtesy of Comstock Partners

(H/t Pragcap) 

The current market rally is not based on a self-sustained typical economic recovery, but on blind faith that the Fed can pull out a magic wand and cure everything with another round of quantitative easing (QE2).  As we pointed out last week, this a desperate attempt by the Fed to try non-conventional means to get the economy going again after a massive dose of conventional measures resulted in failure.  The members of the FOMC know this, but with further fiscal measures off the table, they are aware that they are the only game in town.  The Fed’s acknowledgement that the economy is in trouble is again highlighted by the latest Beige Book released yesterday.  The following are some excerpts from the report:

“National economic activity continued to rise, albeit at a modest pace..consumer spending was steady to up slightly, but consumers remained price-sensitive, and purchases were mostly limited to necessities and non-discretionary items..Housing markets remained weak..Most reports suggested overall home sales were sluggish or declining..Home inventories were elevated or rising..Conditions in the commercial real estate market were subdued, and construction was expected to remain weak.Reports suggested that rental rates continued to decline for most commercial property types..industry contacts appeared to believe that the commercial real estate and construction sectors would remain weak for some time..Hiring remained limited, with many firms reluctant to add to permanent payrolls, given economic softness..Future capital spending plans appeared to be limited”

So there you have an outline of the anemic economic picture in the Fed’s own words.  To be sure, they indicated some strong points as well.   But the weakness in consumer spending, housing, capital expenditures, commercial real estate and employment pretty much accounts for some 85% of the overall economy.

In addition some of the major problems that worried the market earlier have not really gone away.  The sovereign debt problems of the weaker EU nations have been papered over without being solved and are still lingering just beneath the surface.  The looming currency wars that were shoved down the road by the recent G-20 meeting are also a major threat to the global economy.

Furthermore the Chinese housing bubble previously highlighted by bearish investor Jim Chanos and others has now appeared on the front page of the New York Times.  A new district of the city of Ordos,…
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Raise Rates, Cowards

Raise Rates, Cowards

Courtesy of Joshua M. Brown, The Reformed Broker 

Here’s the deal, FOMC – I’m going to give you the intellectual cover you need to do what many people believe is impossible right now.  I’m going to help you get the jelly out of your spines.  Bear in mind that what I’m about to hit you with is coming from both street smarts and Street smarts; I ain’t the professor of nothing.

Benji, your "I’m a student of the Depression" rap is totally rate-arded at this point.  No one’s going to call you Hoover, you can stop now.

What should you do?  Pay close attention, because I choose my words very carefully and I never repeat myself…

The Move:

The Fed Funds target rate needs to go to 1% immediately. It should happen out of nowhere, not during one of your regularly scheduled FOMC slumber parties.  That’s how China rolls, nobody gets advance notice of nothing.  No jawboning, no telegraphing.   It just IS.

The Perception:

The statement should be something to the effect of "now that the recovery has firmly taken hold…"  Anyone who’s raised themselves up in the business world understands the concept of "Fake it til you Make it" and a lot of economic activity is based on perception and confidence.  Your woe-is-me rate policy gives me all the confidence of an airline pilot wearing two different shoes.…
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Drunken Horses and Drunken Horses’ Asses in Academic Wonderland

Drunken Horses and Drunken Horses’ Asses in Academic Wonderland

Courtesy of Mish

The stock market and commodities are rallying once again over the upcoming QE announcement. Every bit of news, no matter how trivial, supportive of what everyone already knows (that QE is coming), gets market participants get more excited every time.

Will the actual announcement of what we all know result in the biggest sell-the-news event since the Fed’s interest rate cut in January of 2001?

While pondering that, please consider Fed Minutes Lend Weight to Stimulus

The minutes of the Sept. 21 meeting of the Federal Open Market Committee indicated that several officials “consider it appropriate to take action soon,” given persistently high unemployment and uncomfortably low inflation.

Now, with unemployment near 10 percent and with inflation well below the Fed’s unofficial goal of nearly 2 percent, the Fed is considering renewed intervention: creating money to buy long-term Treasury debt. That would put additional downward pressure on long-term rates, making credit even cheaper.

Former Fed officials interviewed on Tuesday appeared to be just as divided as the current ones.

“If you lead the horse to water and it won’t drink, just keep adding water and maybe even spike it,” said Robert D. McTeer, who was president of the Federal Reserve Bank of Dallas from 1991 to 2005 and is a well-known inflation “dove,” particularly attuned to the harm of joblessness. “You definitely don’t want to take the water away.”

H. Robert Heller, a Fed governor from 1986 to 1989, had the opposite view, urging the Fed to show restraint.

“I would do nothing,” he said, expressing concern that the Fed might appear to be “monetizing the debt,” or printing money to make it easier for the government to borrow and spend.

“If they start to monetize the federal debt, they will dig themselves a much deeper hole later on,” he said. “That’s what we learned from the 1970s, when the Fed undertook a very expansionary monetary policy. It took a double recession in the early 1980s to wring inflation out of the economy. We don’t want to repeat that.”

William C. Dudley, president of the Federal Reserve Bank of New York, recently raised the possibility that inflation could be allowed to run above the implicit target for some time in the future, to make up for inflation today being lower than desired. That could


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FOMC: No Change, Just Chillin’ Like Penicillin

FOMC: No Change, Just Chillin’ Like Penicillin

Courtesy of Joshua M Brown, The Reformed Broker 

NEW YORK - MAY 03:  Actress Roseanne Barr eats cookies onstage at the MTV Networks Upfront at the Paramount Theater May 3, 2005 In New York City.  (Photo by Scott Gries/Getty Images)

In the most surprising move since Rosanne replaced Becky with a different actress and just acted like we should all shut up and watch and not freak out or anything, the FOMC announced today that the Fed Funds target rate would remain at zero. 

I know, I’ll give you a moment for the shock to wear off.

Here’s the statement:

Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

I don’t have much else to add here.  I’m too busy counting up all those interest rate dollars piling up in my money market account. 

Source:

Board of Governors of the Federal Reserve 


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Back in the Soup

Back in the Soup

Courtesy of MIKE WHITNEY writing at CounterPunch

Pea Soup

On Tuesday, the Fed announced that it will reinvest the proceeds from maturing mortgage-backed securities into US Treasuries. The process is called Quantitative Easing. In theory, Q.E. increases inflation expectations so that consumers spend more before their money loses value and thus rev up the economy. That’s the theory.  But adding to bank reserves when the banks are already loaded to the gills, achieves nothing.  It doesn’t put money in the hands of people who will spend it, generate more economic activity or increase growth. It’s a big zero. Oddly enough, the Fed even admits this. According to an article in Bloomberg News, "The Central Bank posted a paper co-written by Seth Carpenter, associate director of the Fed’s monetary-affairs division, finding that the “quantity of reserve balances itself is not likely to trigger a rapid increase in lending.” No "increase in lending" means no credit expansion and no rebound. Thus, QE will have no real impact.

From the FOMC Statement:

"Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated…..

“The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability."

There’s not a glimmer of light in the Fed’s statement, and yet, "the Committee anticipates a gradual return to higher levels of resource utilization". But how? And on what is the Fed basing its prediction? Certainly not the data. Maybe tea leaves? The truth is the economy is in very bad shape and getting worse. This is from Wednesday’s New York Times:

"The government’s preliminary estimate for economic growth in the


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Kansas City Fed’s Hoenig: Monetary Policy Should Remain on Hold

Kansas City Fed’s Hoenig: Monetary Policy Should Remain on Hold

Courtesy of Jr. Deputy Accountant 

By "on hold" he means don’t buy any more crap assets, you asshats. I could be wrong on that interpretation but I’m pretty sure I’m up on my Fedspeak these days.

MW:

The Federal Reserve should resist the temptation to take more easing steps despite growing concerns in some quarters of a slowdown, said Thomas Hoenig, the president of the Kansas City Federal Reserve Bank on Wednesday. "I feel that monetary policy should remain on hold," Hoenig said in an interview on the CNBC cable television channel. The Kansas City Fed president said some weak data had not shaken his basic forecast of a modest recovery this year.

In case you don’t already know, Hoenig is the FOMC’s resident cockblocker and has dissented every month for the year. Unlike our buddy Janet Yellen who prefers the yes method. 


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Should Investors Boycott the Stock Market?

Should Investors Boycott the Stock Market?

Courtesy of Frederick Sheehan of AuContrarian Blog

Investing in stocks is marketed as believing in America. Imbedded is the assumption that buying stocks is a fair deal. An investor might make or lose money, but the same chance was taken by all participants.

Although they have received little notice, the recently released 2004 Federal Reserve Open Market Committee (FOMC) transcripts show how the Fed was channeling its attention and distorting markets for the benefit of favored institutional investors. (See AuContrarian.com "blog" The 2004 Fed Transcripts: A Methodical, Diabolical Destruction of America’s "Wealth".) The 2004 Transcripts were not so much a revelation as a confirmation. The Fed’s valiant attempt to prevent the economy from deflating (its claim at the time) by inflating asset markets is now a matter of public record. FOMC members explicitly stated they were working with hedge funds and pushing housing prices up.

We know how this ended. The Fed’s policy was successful until 2007. Then all asset prices collapsed, along with the institutions (banks and brokerages) that believed the Fed could prevent prices from ever falling. The backstop was known as the "Greenspan Put:" the belief that Chairman Greenspan’s Fed would always prevent market prices from falling.

A put option gives the buyer an option (a choice) to sell a security at a price previously negotiated with the seller. A put option is valuable if prices fall below the level of the negotiated price. An investor can buy a put with the right to sell the S&P 500 Index at 800. If the Index rises to 1100, the option is worthless. (Why sell it for $800 when it can be sold in the market for $1100?) If the S&P 500 Index falls to 600, the value of the put option is worth at least $200 to the owner of the put: the Index is trading for $600 but can be sold for $800. The put option is an insurance policy against a stock market collapse. The need for the average investor to understand such instruments will be discussed below.

The Greenspan Put begat the Bernanke Put, once the latter became chairman in 2006. Believers in the Put have reason for such faith. The 2004 transcripts show the FOMC toiled to fulfill this zeal. The zealots ignore the failure of the Put in 2007 and 2008.

The credit collapse of 2007 and…
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“Never Even a Whisper” at Fed’s Open Market Committee Meetings

Another excellent article by George Washington on regulatory capture and willful blindness displayed by the Fed on an ongoing basis.  - Ilene 

"Never Even a Whisper" at Fed’s Open Market Committee Meetings

May Day Demonstrations

Courtesy of George Washington

Washington’s Blog

Ben Bernanke, William Dudley and Donald L Kohn are on the Fed’s Open Market Committee (FOMC).

They are also on the board of directors of the Bank for International Settlements (BIS) – often called the "central banks’ central bank". And Kohn is an alternate director for BIS.

Alan Greenspan, of course, was a BIS director for many years.

Dudley is also chairman of BIS’ Committee on Payment and Settlement Systems. (Tim Geithner – previously on the FOMC – previously held that post).

So there is clearly quite a bit of overlap between the two groups.

In addition, BIS’ chief economist – William White – and others within BIS – repeatedly warned the Federal Reserve and other central banks that they were setting the world economy up for a fall by blowing bubbles and then using "using gimmicks and palliatives" which "will only make things worse".

As Spiegel wrote last July:

White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market…

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy…

In the restrained world of central bankers, it would have been difficult for White to express himself more clearly…

It was probably the biggest failure of the world’s central bankers since the founding of the BIS in 1930. They knew everything and did nothing. Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space…

In their report, the BIS experts derisively described the techniques of rating agencies like Moody’s and Standard & Poor’s as "relatively crude" and noted that "some caution is in


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Hoenig: What about zero?

Hoenig: What about zero?

metallic zero

Courtesy of Edward Harrison at Credit Writedowns 

Below is a link to the speech Thomas Hoenig, president of the Reserve Bank of Kansas City, gave today in Santa Fe, NM.  The critical part of his speech was:

Under this policy course, the FOMC would initiate sometime soon the process of raising the federal funds rate target toward 1 percent. I would view a move to 1 percent as simply a continuation of our strategy to remove measure that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008. In addition, a federal funds rate of 1 percent would still represent highly accommodative policy. From this point, further adjustments of the federal funds rate would depend on how economic and financial conditions develop.

As I have been saying, the pressure to normalize both fiscal and monetary policy will be too great to bear in the U.S. I see zero rates as a distortion that needs to end. See Niels’ piece When the Facts Change about how this creates echo bubbles. On the other hand, fiscal stimulus, especially for job creation, is something I have advocated in the past (but have since moved away from). Irrespective of whether you think all this stimulus is a good thing, we are likely to see less of it.

Source

What about Zero (pdf) – Thomas Hoenig, KC Fed

Pragcap’s docstock (prior post) here.


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St. Louis Fed: US Deflation No Longer A Risk

St. Louis Fed: US Deflation No Longer A Risk

Courtesy of Mish

Crowds Gather For New York's Annual Thanksgiving Day Parade

If you think the Fed is a contrarian indicator, your hair may be standing straight up after you read this: James Bullard a voting member of the Fed says US deflation no longer seen as a risk.

The US has escaped the danger of a Japanese-style deflationary trap, according to James Bullard, a voting member of the Federal Reserve’s key policy-setting committee. Mr Bullard, president of the Federal Reserve Bank of St Louis, told the Financial Times in an interview that his preoccupation throughout 2009 had been deflation, but the risk had “passed”.

Last week’s Fed meeting produced a dissenting vote for the first time in a year when Thomas Hoenig, president of the Kansas City Fed and a rate hawk, argued that financial conditions no longer warranted a policy of holding rates at “exceptionally low levels . . . for an extended period”.

Mr Bullard, who is considered a centrist member of the FOMC, said he was happy to continue with the current guidance, but he did have some sympathy for Mr Hoenig’s argument that “if you come off zero and you move up a little bit, it’s still a very easy policy. You’ve still got a very large balance sheet and you’re still at very low interest rates.”

The broader post-crisis economy was “on track” with its recovery, he said. “It’s not a real strong recovery but that’s what we had predicted anyway. But it will be above-average growth for the first half of 2010 and we’ll probably see some positive jobs growth in the first part of 2010 here.”

When the Fed does come to raise rates it may have to switch from its traditional benchmark of targeting the federal funds rate to targeting a repurchase rate because of the upheaval in the two markets over the last two years.

Be prepared for a massive slide and a resumed deflationary credit crunch. If you need a reason, look no further than Massive Layoffs Coming in NYC, Nevada, California, Colorado, Arizona, Everywhere.

Mike "Mish" Shedlock

 


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Phil's Favorites

Q+A: Boris Johnson tests positive for coronavirus - what happens now?

 

Q+A: Boris Johnson tests positive for coronavirus – what happens now?

He’s felt better. PA.

Courtesy of Nicholas Allen, Royal Holloway

Boris Johnson, the British prime minister, has tested positive for the COVID-19 virus. In a recorded video message, Johnson said he had developed “mild symptoms” and is now in self-isolation. Here are the main issues at play for the UK in this time of crisis.

Will Boris Johnson continue as prime minister?

Johnson has made it clear that he will continue to oversee the government’...



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Zero Hedge

25-Year-Old California Man With No Underlying Conditions Dies Of COVID-19

Courtesy of ZeroHedge View original post here.

While coronavirus deaths have primarily been in those above 50-years-old, the disease has also been sending younger people to the ICU in larger than expected numbers - and in some cases, claiming younger victims.

In France, doctors have reported that 50% of ICU patients are under 60-years-old, while in the Netherlands, half are under 50.

Nearly 50% of c...



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Insider Scoop

'Psyched': Hawaii Considers Resolution For Shrooms, Champignon Eyes Ketamine Products

Courtesy of Benzinga

Psyched is a bi-monthly column covering the most important developments in the industry of medicinal psychedelics. We hope you follow us periodically as we report on the growth of this exciting new industry.

Champignon Brands Buys IP Company and Adds Ketamine and New Formulations To Its Portfolio

On March 19, Champignon Brands Inc. (CSE: SHRM) (OTC: SHRMF), a Canadian healt...



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The Technical Traders

These Index Charts Will Calm You Down

Courtesy of Technical Traders

I put together this video that will calm you down, because knowing where are within the stock market cycles, and the economy makes all the difference.

This is the worst time to be starting a business that’s for sure. I have talked about this is past videos and events I attended that bear markets are fantastic opportunities if you can retain your capital until late in the bear market cycle. If you can do this, you will find countless opportunities to invest money. From buying businesses, franchises, real estate, equipment, and stocks at a considerable discount that would make today’s prices look ridiculous (which they are).

Take a quick watch of this video because it shows you ...



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Kimble Charting Solutions

Broadest Of All Stock Indices Testing Critical Support, Says Joe Friday!

Courtesy of Chris Kimble

One of the broadest indices in the states remains in a long-term bullish trend, where a critical support test is in play.

The chart looks at the Wilshire 5000 on a monthly basis over the past 35-years.

The index has spent the majority of the past three decades inside of rising channel (1). It hit the top of this multi-decade channel to start off the year, where it created a monthly bearish reversal pattern.

Weakness the past 2-months has the index testing rising support and the December 2018 lows at (2).

Joe...



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Biotech/COVID-19

Coronavirus treatments and vaccines - research on 3 types of antivirals and 10 different vaccines is being fast-tracked

 

Coronavirus treatments and vaccines – research on 3 types of antivirals and 10 different vaccines is being fast-tracked

Scientific research on the novel coronavirus has progressed at unprecedented speed. Mongkolchon Akesin / Shutterstock

Courtesy of Ignacio López-Goñi, Universidad de Navarra

Just three months after China first notified the World Health Organization about a deadly new coronavirus, studies of numerous antiviral t...



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Chart School

Cycle Trading - Funny when it comes due

Courtesy of Read the Ticker

Non believers of cycles become fast believers when the heat of the moment is upon them.

Just has we have birthdays, so does the market, regular cycles of time and price. The market news of the cycle turn may change each time, but the time is regular. Markets are not a random walk.


Success comes from strategy and the execution of a plan.















Changes in the world is the source of all market moves, to catch an...

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Digital Currencies

Bitcoin Tested As A Safe Haven After Biggest Stock Crash Since 2009

Courtesy of ZeroHedge View original post here.

Authored by Horus Hughes via CoinTelegraph.com,

Gold and Bitcoin react to global panic

Amid all of yesterday's chaos in bond, commodity, and stock markets, with the yield on the 10-year US Treasury note dropping below 0.5% for the first time in history - a strong indicator that investors are desperately looking for safe harbors - two supposed safe-havens in 'alternative currencies' behaved qui...



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Members' Corner

Bloody Mob Sh*t: An Interview with Lincoln's Bible

 

Bloody Mob Sh*t: An Interview with Lincoln's Bible

We talk Trump, Mogilevich, Epstein, Giuliani, Fred Trump, Roy Cohn, and more.

Courtesy of Greg Olear at PREVAIL, author of Dirty Rubles: An Introduction to Trump/Russia

(Originally published on Feb. 21, 20.)

...

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ValueWalk

Entrepreneurial activity and business ownership on the rise

By Jacob Wolinsky. Originally published at ValueWalk.

Indicating strong health of entrepreneurship, both entrepreneurial activity and established business ownership in the United States have trended upwards over the past 19 years, according to the 2019/2020 Global Entrepreneurship Monitor Global Report, released March 3rd in Miami at the GEM Annual Meeting.

Q4 2019 hedge fund letters, conferences and more

The Benefit Of Entrepreneurial Activity ...

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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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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. Contact Ilene to learn about our affiliate and content sharing programs.