Home » Posts tagged 'Federal Reserve' (Page 8)

Tag Archives: Federal Reserve

On Monday, in “JPM Looks At Draghi’s ‘Package,’ Finds It ‘Solid’ But Underwhelming,” we noted that according to Mislav Matejka, investors would do well to fade the ECB’s latest attempt to jumpstart inflation, growth, and of course asset prices with Draghi’s version of a Keynesian kitchen sink.

“Overall, we believe the latest package is far from a game changer,” Matejka opined.

What was especially interesting about that particular note was the following graph and set of tables which show just how “effective” NIRP has been for the five central banks that have tried it so far.

As you can see, once you go NIRP, it’s pretty much all downhill from there whether you’re talking inflation, the economy, or even equities.

Given that, and given that the entire idea is absurd on its face for a whole laundry list of reasons, one wonders why any central banker would chase down this rabbit hole only to find themselves the protagonist in the latest retelling of “Krugman in Wonderland”.

In any event, for those wondering whether the Fed will join the ECB, the BoJ, the Riksbank, the SNB, and the NationalBank in this increasingly insane monetary experiment, below, courtesy of Bloomberg, find a chronological history of Fed and analyst commentary on NIRP in America.

FED COMMENTARY

March 16: Yellen said during post-FOMC press conference Fed isn’t actively considering negative rates, studying effects in other nations
March 2: San Francisco President Williams said “we’re not doing negative interest rates”; Williams Feb. 25 said negative rates are “potentially in the toolbox” but may have “unintended consequences”
March 1: Former Fed Chairman Alan Greenspan said on Bloomberg Radio and TV negative interest rates, if pursued for an extended period of time, will eventually distort saving and investment…click on the above link to read the rest of the article…

Impaled On Its Own Petard——The Fed’s Folly Festers Further

March 17, 2016

Impaled On Its Own Petard——The Fed’s Folly Festers Further

Listening to even a small portion of Simple Janet’s incoherent babble makes very clear that the nation’s central bank is well and truly impaled on its own petard. According to the dictionary, the latter term refers to…..

…….. a small bomb used for blowing up gates and walls when breaching fortifications. It is of French origin and dates back to the 16th century. A typical petard was a conical or rectangular metal device containing 2–3 kg (5 or 6 pounds) of gunpowder, with a slow match for a fuse.

Maybe that’s what they have been doing all along—–that is, waiting for their slow match monetary fuse to finally ignite the next financial conflagration.

After all, the Fed is now 87 months into its grand experiment with the lunacy of zero interest rates. If our monetary central planners still can’t see their way clear to more than 38 bps of normalization, then, apparently, they intend to keep the casino gamblers in free carry trade money until they finally blow themselves up——just like they have already done twice this century.

In fact, by Yellen’s own bumbling admission the inhabitants of the Keynesian puzzle palace—-into which the Eccles Building has long since morphed—–can’t see their way to much of anything. They couldn’t even decide if the risks to the outlook are balanced to the upside or downside. And that roundhouse kind of judgment isn’t even remotely measureable or exacting; it requires nothing more than a binary grunt.

As a practical matter, the joint has lapsed into a state of mental entropy——apparently under the risible assumption that they have abolished the business cycle and have limitless time to normalize. Yet we are already at month 81 of this so-called expansion, and the signs of approaching recession are cropping up daily.

…click on the above link to read the rest of the article…

The Monetary Base, Buybacks and the Stock Market

March 17, 2016

The Monetary Base, Buybacks and the Stock Market

A Useful Leading Indicator?

We often see charts comparing the S&P 500 to the growth in the Federal Reserve’s balance sheet, or more specifically, to assets held by the Fed. There is undeniably a close correlation between the two, but it has struck us as not very useful as a “timing device”, or an early warning device if you will.

Recently we have come across a video of a presentation by Bob Murphy, in which he uses a slightly different comparison that might prove more useful in this respect. Instead of merely looking at Fed assets, he uses the total monetary base. Here is a chart comparing the monetary base to the S&P 500 Index since 2009:

The monetary base (red line) vs. the S&P 500 (blue line) – as can be seen, sometimes one or the other series leads, but in recent years the monetary base has been a leading indicator. It probably lagged the market in 2010/11 due to the fact that traders at the time bought stocks in anticipation of more monetary pumping – whereas nowadays the market appears to be reacting with a slight lag to changes in base money – click to enlarge.

Below is a chart that shows consolidated assets held by the Federal Reserve system for comparison. Since the Fed is currently reinvesting funds from MBS and treasuries that mature, its total asset base is basically flat-lining since the end of QE3. Obviously, all that can be gleaned from this fact is that the central bank is currently not activelypumping up the money supply. Currently money supply growth is therefore largely the result of commercial bank credit growth.

Assets held by the Federal Reserve – flat-lining since the end of QE3. Interesting, but not useful as a short term leading indicator of the stock market – click to enlarge.

…click on the above link to read the rest of the article…

We Need the Pain that Comes with More Saving

March 16, 2016

We Need the Pain that Comes with More Saving

The endgame of monetary side manipulations is upon us. Since 2008, central banks have done what they thought was needed to bring the markets back from the pain they experienced during the crash. The problem, of course, is that these Keynesians and Monetarists placed the high level of stock markets as the goal of “policy” and confused booming asset levels with economic growth.

The enemy of prosperity, in the eyes of global economic policymakers, is the desire of the consumer to save and businesses to refrain — even in the short term — from investment. As such, their “solution” was the very poison that has infected the Western world over the decades: more credit, lower costs of money, more push for “consumer demand.”

The Current Orthodoxy Is Failing

But “easy” monetary policy has merely led to debt-ridden economies and a bubble that is increasingly being exposed as a complete farce. January saw a market pullback tease that reminded investors that what was pushed up artificially can’t be sustained forever. Monetary policy, even if it goes to negative interest rate territory with a vengeance, isn’t going to be the miracle drug needed to provide a better economic foundation. Austrians have long known this. The mainstream is just starting to publicly admit it.

The Savings-Glut Myth

However, the right lessons are not being learned by either the economic policymakers or the financial pundits. In fact, the most dangerous economic fallacies still underlie their entire financial worldview. For instance, there is the ever-constant theme that there is a “glut of savings” and that low consumer demand is the chief villain that stands opposed to economic stabilization. Martin Wolf, writes in The Financial Times:

…click on the above link to read the rest of the article…

Economics Is Like A Religion – Just Faith In Theory

March 15, 2016

Economics Is Like A Religion – Just Faith In Theory

Everyone is missing the serious problem that ultra-low interest rates have created for retirees.

Pension funds are still assuming that future returns will be in the 7½–8% range. And as people get older and have no practical way to go back to work, pension funds that are forced to reduce payments in 10 or 15 years (and some even sooner) will destroy the lifestyles of many.

So what made Europe and Japan agree that negative rates-with all their known and unknown consequences—are a solution to our current economic malaise?

I have been trying to explain this by comparing economic theories to a religion.

Everyone understands that there is an element of faith in their own religious views, and I am going to suggest that a similar act of faith is required if one believes in academic economics.

Economics and religion are actually quite similar. They are belief systems that try to optimize outcomes. For the religious, that outcome is getting to heaven, and for economists, it is achieving robust economic growth-heaven on earth.

I fully recognize that I’m treading on delicate ground here, with the potential to offend pretty much everyone. My intention is to not to belittle either religion or economics, but to help you understand why central bankers take the actions they do.

The No. 1 Commandment of a Central Bank

Central bankers are always-and everywhere-opposed to inflation. It’s as if they are taken into a back room and given gene therapy. Actually, this visceral aversion is also imparted during academic training in the elite schools from which central bankers are chosen.

This is our heritage; it’s learning derived not only from the Great Depression but also from all of the other deflationary crashes in our history (not just in the US but globally).

…click on the above link to read the rest of the article…

Growth Is the Answer to Everything

March 15, 2016

Growth Is the Answer to Everything

The Solution to Every Problem

Little Changes Add Up
Restoring Growth
From Carrot to Stick
Newport Beach, New York, and an SIC Conference Update

“Growth is never by mere chance. It is the result of forces working together.”
– James Cash Penney

In this business we spend a lot of time thinking about problems. What if we could wave a magic wand and make them all go away? Maybe we can.

The wand isn’t made from wood. You don’t need Latin phrases or a special incantation learned at Hogwarts to make it work, either. It’s a simple six-letter word: growth. Get the economy growing at a decent pace again, and most of our problems will get better.

Conversely, they’ll only get worse if we stay in slow-growth mode. And don’t even think about what a recession will do to the markets in this environment.

Fortunately, there are things we can do to bring growth back. We just have to decide to do them.

The Solution to Every Problem

A new reader browsing through my archives might get the impression I am a worrywart. In fact, I’m quite optimistic about our future – but I don’t deny we face serious challenges. My weekly letters are a peek into my ongoing thought process as I wonder how we will tackle those challenges.

Just in the past few months we’ve looked at problems like retirement, energy prices, political chaos, zero interest rates, negative interest rates, China’s economy, terrorism, unemployment, inflation, pensions , healthcare, refugees, and the Federal Reserve. And an overarching theme of many letters has been the very big problem of growing debt. Whew – so many problems.

…click on the above link to read the rest of the article…

This Chart Shows the First Big Crash Is Likely Just Ahead

March 15, 2016

This Chart Shows the First Big Crash Is Likely Just Ahead

The story on Wall Street and CNBC continues to be that we’re in a correction and this is a buying opportunity. Even Warren Buffett joins the chorus of stock market cheerleaders for the skeptical public. Well, I agree with the skeptical public, not the experts here!

The bull market from early 2009 into May 2015 looks just like every bubble in history, and I’m getting one sign after the next that we did indeed peak last May. The dominant pattern in the stock market is the “rounded top” pattern:

S&P 500 rounded top

After trading in a steep, bubble-like channel from late 2011 into late 2014, with only 10% maximum volatility top to bottom, the market finally lost its momentum… just as the Fed finished tapering its QE. That’s because the Fed was the primary driver in this stock bubble in the first place!

But the first sign that the bubble had indeed peaked was the break of that upward channel last August. Surprise, surprise! Without the Fed’s stimulus, stocks started to sputter out!

With that sign we can point to what now looks like a series of major tops, in one major index after the next, since late 2014:

Dow Transports, November 2014.
Dow Utilities, January 2015.
The DAX in Germany and the FTSE in the UK: April, 2015.
The Dow and S&P 500: May 2015.
The Shanghai Composite: June 2015.
The Nasdaq, Biotech and the Russell 2000: July 2015.
And finally, the Nikkei in Japan: August 2015.

The Shanghai Index crashed 45% in 2.5 months, similar to the Dow in late 1929 on its first 2.5-month wave down. That one was so obvious that when I said it was about to burst, it peaked that day and rolled over the next!

…click on the above link to read the rest of the article…

Ryan McMaken: The European Central Bank Finally Throws in the Kitchen Sink

March 14, 2016

RYAN MCMAKEN: THE EUROPEAN CENTRAL BANK FINALLY THROWS IN THE KITCHEN SINK

Back in January, ECB President Mario Draghi doubled down on his earlier commitment to do “whatever it takes” to prop up the European economy with easy money.” “There are no limits to how far we’re willing to deploy our instruments,” Draghi swore in January.

He wasn’t joking. Today, Draghi and the ECB resorted to what some are calling the “kitchen sink” option, and what others are calling the “bazooka.”

You don’t have to be an expert on monetary policy to understand what these metaphors are trying to tell you.

According to CNBC:

In light of cuts to the growth and inflation outlook, the ECB announced on Thursday that it had cut its main refinancing rate to 0.0 percent and its deposit rate to minus 0.4 percent.

“While very low or even negative inflation rates are unavoidable over the next few months as a result of movement in oil prices, it is crucial to avoid second-round effects,” Draghi said in his regular media conference after the ECB statement.

The bank also extended its monthly asset purchases to 80 billion euros ($87 billion), to take effect in April. In addition, the ECB will add corporate bonds to the assets it can buy — specifically, investment grade euro-denominated bonds issued by non-bank corporations. These purchases will start towards end of the first half of 2016.

Eighty billion euros? That’s a huge number. Some may remember that during QE3 — the largest of the Quantitative Easing programs — in 2013, the Fed was making $85 billion per month in asset purchases.

It eventually trimmed back to $75 billion and then $65 billion. In that time, the Fed amassed a balance sheet of more than $4 trillion.

…click on the above link to read the rest of the article…

The Central Bankers Are Crazy & Public is Out Of Its Mind – Where’s the Beef?

March 13, 2016

The Central Bankers Are Crazy & Public is Out Of Its Mind – Where’s the Beef?

The central bankers are simply crazy, not evil. They are trying to steer the economy by utilizing this simpleton theory that if you make something cheaper, someone will buy it. Japanese and German cars managed to get a major foothold in the U.S. because the quality of U.S. manufacturers collapsed, thanks to unions. The socialist battle against corporations forgot something important – the ultimate decision maker is the consumer. The last American car I bought in the 1970s simply caught on fire while parked in my driveway. Another friend bought a brand-new American car and there was a terrible rattle. When they took the door panel off, there was an empty bottle of Coke inside. Cheaper does not always cut it. Gee, shall we cheer if the stock market goes down by 90%? It would be a lot cheaper. Why does the same theory not apply?

Then we have the trading public. If the central bankers have gone crazy with this whole negative interest rate theory, then the public is simply out of their minds. The euro rallied because Draghi cut rates further, extended the stimulus another year, increased the amount by another 33%, and then declared rates would stay there for years to come. And these insane traders cheer. Unbelievable! They are celebrating the public admission of Draghi that all his efforts to date have failed, so let’s do even more of the same. And they love this nonsense? Negative interest rates have become simply a tax on saving money and the stupid traders and media writers love it. The Fed tries to raise rates and they say – NO! This is a stunning combination of admission and stupidity that one would expect from a pretty but clueless girl and her drunk college boyfriend who can’t say no to any girl:

…click on the above link to read the rest of the article…

Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

March 11, 2016

Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

While the leaders of the Fed and other central banks claim that their extraordinary monetary policies haven’t significantly increased inequality, economists with the world’s most prestigious financial agency, the Bank of International Settlements – known as “the Central Banks’ Central Bank” – just released a report showing otherwise.

BIS notes:

Our simulation suggests that wealth inequality has risen since the Great Financial Crisis. While low interest rates and rising bond prices have had a negligible impact on wealth inequality, rising equity prices have been a key driver of inequality …. Monetary policy may have added to inequality to the extent that it has boosted equity prices.

***

Inequality is back in the international economic policy debate. Evidence of a growing dispersion of income and wealth within major advanced and emerging market economies (EMEs) has sparked discussions about its economic consequences. Although there is no consensus on the relationship between inequality and growth, there are concerns that rising inequality may become a serious economic headwind. [Right.]

***

Moreover, the faster rise in remuneration at the very top of the income distribution relative to wage growth in the lower percentiles has been linked both to the rapid growth of the financial sector since the 1980s [correct] and to changes in the social norms that contribute to the determination of executive pay (Piketty (2014)).

***

The share of securities holdings, equity in particular, tends to be even higher at the top 5% or 1% of the distribution. [Obviously.]

Conversely, housing accounts for a higher share in the lowest net wealth quintile, for which low net wealth is in many cases a reflection of high levels of mortgage debt. In a number of cases, net wealth is negative, suggesting that liabilities, in the form of mortgage, consumer and other debt, exceed assets.

…click on the above link to read the rest of the article…

David Stockman: Thanks for the Corporate Bond Bubble, Fed

March 11, 2016

DAVID STOCKMAN: THANKS FOR THE CORPORATE BOND BUBBLE, FED

Once upon a time businesses borrowed long term money—-if they borrowed at all—-in order to fund plant, equipment and other long-lived productive assets. That kind of debt was self-liquidating in the sense that it usually generated a stream of income and cash flow that was sufficient to service and repay the debt, and to kick some earned surplus into the pot as well.

Today American businesses are borrowing like never before—-but the only thing being liquidated is there own equity capital. That’s because trillions of debt is being issued to fund financial engineering maneuvers such as stock buybacks, M&A and LBOs, not the acquisition of productive assets that can actually fuel future output and productivity.

So it amounts to a great financial shuffle conducted entirely within the canyons of Wall Street. Financial engineering deals invariably shrink the float of outstanding stock among the companies visiting underwriters. Likewise, they invariably leave with the mid-section of their balance sheets bloated with fixed obligations, while the bottom tier of shareholder equity has been strip-mined and hollowed out.

At the same time, none of this vast flow of capital leaves a trace on the actual operations—-such as production, marketing and payrolls—of the businesses involved. Instead, prodigious sums of debt capital are being sold to yield-hungry bond managers and homegamers via mutual funds and then recycled back into windfall gains for stock market gamblers who chase momo plays and the stock price rips that usually accompany M&A, LBO or stock buyback announcements.

Needless to say, central bank financial repression is responsible for this destructive transformation of capital market function.

…click on the above link to read the rest of the article…

Secret Monetary Group Warns a Catastrophe Is Coming

March 10, 2016

Secret Monetary Group Warns a Catastrophe Is Coming

This is just the tip of the iceberg.

The Bank for International Settlements is nothing if not obscure. As the central bankers’ bank, it seems little-more than a back-door, private club for monetary elites to rub shoulders. And it’s located in Switzerland which has always carried a reputation for financial secrecy.

Then it has this going for it – John Keynes of “Keynesian economic theory” opposed its dissolution back in the 1940s. His was the kind of thinking that has largely influenced central banks to hijack our economies with manipulative monetary policies! So you’d probably think I hate these guys.

But you’ve got to give credit where credit is due. The Bank for International Settlements is one of the few financial institutions that warned of dangers to the global financial system as early as 2003.

So by time the financial crisis struck, they’d been warning about it for years. Its former chief economist, William White, even dared to challenge former Fed Chair Alan Greenspan about cheap money policies that helped start the crisis!

Once again, this group is on the right side of history.

It just warned about a “gathering storm” in the global economy as central banks seem to be running out of options. They’ve seen right through this “recovery” and warned that unprecedented debt levels would put the world economy in worse shape than before the 2008 crash.

Because like with any addiction, there is a point where increased stimulus just doesn’t work anymore.

Just this week, China reported a 25.4% year-over-year decline in exports, despite continued strong economic stimulus from the government. Now, they simply pledge more stimulus like every central bank in the world.

Then there’s Japan, whose economy remains in a coma after the most aggressive QE of all developed nations. Four of the last seven quarters have been negative, including the fourth quarter of 2015.

…click on the above link to read the rest of the article…

Eugen Bohm Von Bawerk: Greenspan, The Sheepherder

March 9, 2016

EUGEN BÖHM VON BAWERK: GREENSPAN, THE SHEEPHERDER

It is common knowledge by now that Federal Reserve Chairman Alan Greenspan oversaw, enabled and approved of, a major transition in the US economy. His infamous “Greenspan-put” in which his actions at the central bank would be driven, if not dictated, by the whims of financial markets, clearly led to higher asset prices. Investors obviously picked up on the strong bias in the Greenspan-Fed’s conduct of monetary policy as they slashed rates at the tiniest hiccup in financial markets, and kept them at low levels for much longer than what would be considered prudent by former administrations. Following markets on the escalator up and taking the elevator down together set a precedent that created a Frankenstein monster, which socialised losses through the printing press while privatizing profits. Such a system was and still is unsustainable as it more or less ensures valuations decouple from underlying fundamentals.

The monetary system in place since the gold-exchange standard that emerged from the rubbles of WWI clearly favours inflation over deflation, so we should expect values expressed in money to have an upward trend imbedded in them. However, a stable system would see nominal valuations rise more or less in tandem. In other words, we would expect a balanced sustainable system to see the price of apples, S&P500, cars, commodities and GDP grow more or less at the same pace.

Note, we are not saying certain markets will never experience idiosyncratic price movements due to their own peculiarities as driven by shifts in supply or demand. On the contrary, shifts inrelative prices are the one thing that make a capitalistic system stable over the long run.

…click on the above link to read the rest of the article…

Cheap Oil, the U.S. Dollar and the Deep State

March 9, 2016

Cheap Oil, the U.S. Dollar and the Deep State

March 9, 2016

All this is to suggest that those expecting a major weakening in the USD to push oil higher shouldn’t hold their breath awaiting this outcome.

That oil fell off a cliff once the U.S. dollar (USD) began its liftoff in mid-2014 is, well, interesting. Causation, correlation or coincidence? There are a variety of opinions on this, as there should be. What we do know is the soaring USD blew up a bunch of carry trades that borrowed money denominated in USD and invested the cash in emerging markets paying much higher yields. Here’s WTIC oil:

And here’s the USD Index:

We also know the Saudis announced that the kingdom would pump every barrel it could “to maintain market share,” which is generally understood to mean crush competitors such as Russia and U.S. shale producers.

We also know that storage facilities are almost full up (Oil Fundamentals Could Cause Oil Prices To Fall, Fast!).

We also know that global growth is slowing, so demand could weaken sharply going forward.

And lastly, we know that many oil exporters are heavily dependent on oil revenues to fund their oligarchy/monarchy/ruling elites, their military and their vast social welfare programs, which keep the restive masses from overthrowing the oligarchy, etc.

Here is the U.S., heavily indebted producers must pump or die, as they need every dime of revenue to service their vast debts.

If we add all this up– carry trades blowing up, weakening demand and heavy pressures to maintain production–we get a perfect set-up for a continued decline in oil.

…click on the above link to read the rest of the article…

The Price Isn’t Right——-How Central Banks Are Fixing To Ambush The Casino

March 8, 2016

The Price Isn’t Right——-How Central Banks Are Fixing To Ambush The Casino

The casino is incorrigible. After a monumental short squeeze that has lifted the averages right into the jaws of danger, Goldman Sachs has the temerity to print the following:

“Our model suggests SPX calls are more attractive than at any time over the past 20 years”.

There must have been a mullets’ breeding frenzy awhile back because it’s hard to fathom how Goldman has any real customers left. Then again, its current preposterous call is just indicative of the horrible threat heading menacingly toward what remains of main street’s 401k investments.

To wit, the Fed and other central banks have thoroughly falsified financial market prices and destroyed all of the ordinary mechanisms of financial discipline. Foremost among these are short sellers and a meaningfully positive cost of carry trades.

Markets are therefore unhinged from any connection to fundamental economic and financial reality, meaning that they are capable of an extended period of spasmodic deadcat bounces that will have only one end result.

Namely, the naïve and desperate among main street investors who still, unaccountably, frequent the casino will presently be taken out back and shot yet another time. The market technicians are pleased to call this “distribution”. Would that someone on Wall Street man-up and amend the phrase to read ” distribution…….of losses to the mullets” and be done with the charade.

The S&P 500 is heading through 1300 from above long before it ever again penetrates from below its old May 2015 high of 2130. And now that 97% of Q4 results are in, there is a single number that proves the case.

Reported LTM profits as of year-end 2015 stood at just $86.46 per S&P 500 share. That particular number is a flat-out bull killer. At a plausible PE multiple of 15X, it does indeed imply 1300 on the S&P 500 index.

…click on the above link to read the rest of the article…

Tag Archives: Federal Reserve

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts