The real financial news today had nothing to do with Mr. Dimon at the Senate. It was again out of Europe. German mfg took a big drop per MarkIt, and Spain is nearly insolvent per Egan-Jones. So we had yet another sharp stock reversal to the downside and yet another lower high about the 150 day sma.
It continues to look as though Europe is going through the U.S. experience of 2008. Now it's nation-states, before it was the core financial structure of the sole superpower with immense global reach. Not sure which is harder to deal with! In any case, the other structural difference from the standpoint of this American observer is that what happened in 2008 occurred at the home of the most important central bank in the world. This European thing is different. The Fed in theory can loan them all they need. In this scenario in which Italy is up next and falls despite the various reassuring words out of Europe today on this topic, Treasury rates could drop to unimaginably low levels. As in Japan, the general stock averages would get hit hard. However, if no catastrophic "Lehman moment" occurs this time, there might be a lot of differentiation between stocks, as was the case in the major 2001-2 U.S. bear market.
In this scenario, volatility will go wild between deteriorating fundamentals and the certainty of intervention-- but when, oh when will they print, and how much and in what form? Summer 2011 set certain modern-day records for 1% up- or down-days. Could a rerun of some such volatility spikes be in the offing?
I am also paying no special attention to the Greek election. Whichever party wins will be happy to have the spoils of power and will do whatever they will do. It's impossible for an American to invest based on such unknowns and the high chance that even if Syriza wins, Tsipras will pull an Enda Kenny, who became P.M. of Ireland only to follow the bail-out course set by the previous guys.
Momentous, perilous times.
Sometimes cash is kingly.
Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts
Wednesday, June 13, 2012
Wednesday, June 30, 2010
"The Fed Is Slowly Losing Its Marbles"
Marvelous post out by Ambrose E-P titled Time to shut down the US Federal Reserve?.
It's a concise must-read; it begins with the title of this post.
Copyright (C) Long Lake LLC 2010
It's a concise must-read; it begins with the title of this post.
Copyright (C) Long Lake LLC 2010
Friday, January 15, 2010
Effects of Credit Creation Increasingly Clear
Bloomberg is running two stories next to each other that relate to the massive creation of "money" (really credit) that followed the immediate crisis.
In Strengthening U.S. Recovery May Intensify Fed Debate on Exit, we see the following intro:
Federal Reserve officials are more confident the U.S. economy is moving toward self-sustaining growth, giving urgency to discussions about the tactics and timing of an exit from record-low interest rates.
Kansas City Fed Bank President Thomas Hoenig said Jan. 11 the central bank should end purchases of mortgage-backed securities because the market is “healing.” Philadelphia Fed Bank President Charles Plosser said the next day that the recovery is “sustainable even as the fiscal and monetary stimulus programs eventually wind down.”
Policy makers are still studying ways to drain $1 trillion in excess cash from the financial system . . .
In other words, the Fed created credit and purchased Treasuries and mortgage-backed securities (MBS) which have an implicit (Fannie/Freddie) or explicit (Ginnie Mae) Federal guarantee.
I question the self-sustaining nature of the recovery, if there is a recovery.
I also do more than question the wisdom of society rather than companies and investors absorbing hundreds of billions or even more than a trillion dollars eventually of losses on mortgages. It would appear that taxpayers have better things to do for the American people than keep Citigroup alive and its bondholders pain interest and principal timely.
In any case, the Fed will have trouble selling the MBS and so is kicking the can down the road in that the credit it created to pay for the MBS and Treasuries is "out there" somewhere.
The proof that the credit is out there is that well before the real economy has come close to its peak levels is shown by the next article, Ratings Rise Fastest Since ‘07, Boost Ford Bonds, which says:
The spread between yields on corporate bonds and benchmark government securities narrowed to 160 basis points yesterday, the smallest gap since Dec. 31, 2007, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. As borrowers focused on refinancing debt in the past two years, cash at non-financial companies rose to $708 billion by the end of the third quarter from about $500 billion between 2004 and 2008, according to JPMorgan Chase & Co.
“Companies are coming out of this recession with balance sheets that are as good or better than they were going into the last recession in 2001,” said John Tierney, a U.S. credit market strategist at Deutsche Bank AG in New York. “Leverage is lower, margins are better, however you slice and dice it.”
Globally, the G7 nations "printed" vast quantities of "money". That money has gone into short-term securities and has bid up asset prices. Unfortunately, what the U. S., the epicenter of the Crash of 2008, is left with is struggling small business, levels of new home and auto sales first seen decades ago, record leverage when governmental debt is included, and official December statistics based on surveys of households showing that "Not in labor force" increased in one month at an annualized rate of about 10 million people and the "establishment" survey of companies measured over 100,000 jobs lost in December after stripping out the imaginary "birth-death" adjustment (85,000 jobs officially lost was the headline number).
On the other hand, parts of the globe that did not partake of our bad securities such as most of Latin America, China and India (and even Russia), are moving along much as if nothing had happened. (Of course, China is dependent on exports to the West, so it has been secondarily affected.)
It is unclear to me whether the recent surge in prices of platinum and palladium are fundamentally justified, but while it would be better if Goldline were not advertising on CNBC, gold has not even come close to a true manic stage; let us hope it never gets there. In my opinion, until the powers that be deal honestly with our debt situation and move to an overall much less leveraged situation, excessive downside risk will remain in the markets and the economy, and gold will likely "have a bid".
Copyright (C) Long Lake LLC 2010
So even as labor
In Strengthening U.S. Recovery May Intensify Fed Debate on Exit, we see the following intro:
Federal Reserve officials are more confident the U.S. economy is moving toward self-sustaining growth, giving urgency to discussions about the tactics and timing of an exit from record-low interest rates.
Kansas City Fed Bank President Thomas Hoenig said Jan. 11 the central bank should end purchases of mortgage-backed securities because the market is “healing.” Philadelphia Fed Bank President Charles Plosser said the next day that the recovery is “sustainable even as the fiscal and monetary stimulus programs eventually wind down.”
Policy makers are still studying ways to drain $1 trillion in excess cash from the financial system . . .
In other words, the Fed created credit and purchased Treasuries and mortgage-backed securities (MBS) which have an implicit (Fannie/Freddie) or explicit (Ginnie Mae) Federal guarantee.
I question the self-sustaining nature of the recovery, if there is a recovery.
I also do more than question the wisdom of society rather than companies and investors absorbing hundreds of billions or even more than a trillion dollars eventually of losses on mortgages. It would appear that taxpayers have better things to do for the American people than keep Citigroup alive and its bondholders pain interest and principal timely.
In any case, the Fed will have trouble selling the MBS and so is kicking the can down the road in that the credit it created to pay for the MBS and Treasuries is "out there" somewhere.
The proof that the credit is out there is that well before the real economy has come close to its peak levels is shown by the next article, Ratings Rise Fastest Since ‘07, Boost Ford Bonds, which says:
The spread between yields on corporate bonds and benchmark government securities narrowed to 160 basis points yesterday, the smallest gap since Dec. 31, 2007, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. As borrowers focused on refinancing debt in the past two years, cash at non-financial companies rose to $708 billion by the end of the third quarter from about $500 billion between 2004 and 2008, according to JPMorgan Chase & Co.
“Companies are coming out of this recession with balance sheets that are as good or better than they were going into the last recession in 2001,” said John Tierney, a U.S. credit market strategist at Deutsche Bank AG in New York. “Leverage is lower, margins are better, however you slice and dice it.”
Globally, the G7 nations "printed" vast quantities of "money". That money has gone into short-term securities and has bid up asset prices. Unfortunately, what the U. S., the epicenter of the Crash of 2008, is left with is struggling small business, levels of new home and auto sales first seen decades ago, record leverage when governmental debt is included, and official December statistics based on surveys of households showing that "Not in labor force" increased in one month at an annualized rate of about 10 million people and the "establishment" survey of companies measured over 100,000 jobs lost in December after stripping out the imaginary "birth-death" adjustment (85,000 jobs officially lost was the headline number).
On the other hand, parts of the globe that did not partake of our bad securities such as most of Latin America, China and India (and even Russia), are moving along much as if nothing had happened. (Of course, China is dependent on exports to the West, so it has been secondarily affected.)
It is unclear to me whether the recent surge in prices of platinum and palladium are fundamentally justified, but while it would be better if Goldline were not advertising on CNBC, gold has not even come close to a true manic stage; let us hope it never gets there. In my opinion, until the powers that be deal honestly with our debt situation and move to an overall much less leveraged situation, excessive downside risk will remain in the markets and the economy, and gold will likely "have a bid".
Copyright (C) Long Lake LLC 2010
So even as labor
Saturday, August 22, 2009
The Fed Is Blowing It Again
Reuters reports in Fed official: rates to be kept low past upturn that the Fed is addicted to short-term thinking, serial bubble-blowing and a continuing war on savers:
Financial markets have not fully understood that the U.S. Federal Reserve's pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them, a top Fed official said on Friday.
"I don't think markets have really digested what that means," St Louis Fed President James Bullard said in an interview.
The Fed's strategy is aimed at promoting a future rise in inflation, which should provide an immediate boost in activity in anticipation of a future boom, but that hasn't happened, Bullard said.
The Fed has learned nothing from keeping rates too low for too long after the 2001 recession. The result was a false boom, a recent depression in manufactured goods and housing, and the first deflationary cycle in decades.
Long rates are higher than in the later 1940s, when the Fed also manipulated long-term rates. Despite all the Fed's actions earlier in this decade, ultimately both short- and long-term rates collapsed to all-time lows and multi-cycle lows, respectively.
My take from what the Fed is saying is: buy gold; buy gold; also don't forget oil, silver, copper, etc., et al., ad infinitum.
That it is a good thing to goose consumption by promising that inflation is coming is quite an amazing concept. Has the Fed learned nothing from the U. S. in the 1970s, from the most recent economic cycle, from Zimbabwe, or from Argentina, to name a small number of the many examples where cheapening the currency is a "bad thing"? The Fed should remember that for every indebted borrower there is a lender. It was the lender who earned the money and forewent the enjoyment of that money so that the borrower could use it either for enjoyment (e.g. homes, autos) or productively (business purpose). To deliberately and repeatedly favor the borrower when it was the lender who made the real sacrifice is both economically wrong and immoral.
As the greatest debtor perhaps in world history, the U. S. needs to start consuming less than it produces. That's defined as saving. The U. S. rose to economic leadership of the world that way. It cannot borrow and print money to prosperity anymore. At best, that would lead to more years of Japan-type stagnation or high inflation.
Perhaps the Fed should go back to such simple functions as assisting banks in money transfers, as well as to be a superbly-capitalized institution that can perform the Bagehotian function of providing liquidity to needy but viable banks at penalty rates to forestall runs on the bank.
We need to also consider removing the responsibility for full employment from being a co-equal goal of the Fed and go to a European approach of having it responsible for low or no inflation as its only policy mandate. Full employment is a political/social goal and truly belongs to Congress and the Executive to implement.
Meanwhile, Dr. Bernanke committed Fed malpractice from taking office in 2006 until the fall of 2008, when the patient had a preventable massive economic seizure/heart attack/stroke (take your pick). He is on the record as repeatedly having no idea of how pervasive and dangerous the credit bubble was in this country.
He has now embarked on an unprecdented PR effort to gain re-nomination. His patient was vigorous to respond to massive economic steroids, adrenaline and the like to the tune of $23.7 trillion dollars (per Neil Barofsky, who heads SIGTARP), but that does not change that he has been a disaster going back to the time when he helped persuade an aging Alan Greenspan at the Fed and the first MBA president to each sign on to the easy money, double-bubble policy that multiple observers correctly predicted would lead to the recent collapse.
It is hoped here that President Obama return to the tradition that a banker by training, not an economist, be the head of the world's most important bank. This would rule out Larry Summers, a brilliant economist but no banker. The Fed employs lots and lots of economists. But it is first and foremost a banking institution and it requires a prudent banker to get things back to a focus on restrained and prudent bank and non-bank lending in America
Copyright (C) Long Lake LLC 2009
Financial markets have not fully understood that the U.S. Federal Reserve's pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them, a top Fed official said on Friday.
"I don't think markets have really digested what that means," St Louis Fed President James Bullard said in an interview.
The Fed's strategy is aimed at promoting a future rise in inflation, which should provide an immediate boost in activity in anticipation of a future boom, but that hasn't happened, Bullard said.
The Fed has learned nothing from keeping rates too low for too long after the 2001 recession. The result was a false boom, a recent depression in manufactured goods and housing, and the first deflationary cycle in decades.
Long rates are higher than in the later 1940s, when the Fed also manipulated long-term rates. Despite all the Fed's actions earlier in this decade, ultimately both short- and long-term rates collapsed to all-time lows and multi-cycle lows, respectively.
My take from what the Fed is saying is: buy gold; buy gold; also don't forget oil, silver, copper, etc., et al., ad infinitum.
That it is a good thing to goose consumption by promising that inflation is coming is quite an amazing concept. Has the Fed learned nothing from the U. S. in the 1970s, from the most recent economic cycle, from Zimbabwe, or from Argentina, to name a small number of the many examples where cheapening the currency is a "bad thing"? The Fed should remember that for every indebted borrower there is a lender. It was the lender who earned the money and forewent the enjoyment of that money so that the borrower could use it either for enjoyment (e.g. homes, autos) or productively (business purpose). To deliberately and repeatedly favor the borrower when it was the lender who made the real sacrifice is both economically wrong and immoral.
As the greatest debtor perhaps in world history, the U. S. needs to start consuming less than it produces. That's defined as saving. The U. S. rose to economic leadership of the world that way. It cannot borrow and print money to prosperity anymore. At best, that would lead to more years of Japan-type stagnation or high inflation.
Perhaps the Fed should go back to such simple functions as assisting banks in money transfers, as well as to be a superbly-capitalized institution that can perform the Bagehotian function of providing liquidity to needy but viable banks at penalty rates to forestall runs on the bank.
We need to also consider removing the responsibility for full employment from being a co-equal goal of the Fed and go to a European approach of having it responsible for low or no inflation as its only policy mandate. Full employment is a political/social goal and truly belongs to Congress and the Executive to implement.
Meanwhile, Dr. Bernanke committed Fed malpractice from taking office in 2006 until the fall of 2008, when the patient had a preventable massive economic seizure/heart attack/stroke (take your pick). He is on the record as repeatedly having no idea of how pervasive and dangerous the credit bubble was in this country.
He has now embarked on an unprecdented PR effort to gain re-nomination. His patient was vigorous to respond to massive economic steroids, adrenaline and the like to the tune of $23.7 trillion dollars (per Neil Barofsky, who heads SIGTARP), but that does not change that he has been a disaster going back to the time when he helped persuade an aging Alan Greenspan at the Fed and the first MBA president to each sign on to the easy money, double-bubble policy that multiple observers correctly predicted would lead to the recent collapse.
It is hoped here that President Obama return to the tradition that a banker by training, not an economist, be the head of the world's most important bank. This would rule out Larry Summers, a brilliant economist but no banker. The Fed employs lots and lots of economists. But it is first and foremost a banking institution and it requires a prudent banker to get things back to a focus on restrained and prudent bank and non-bank lending in America
Copyright (C) Long Lake LLC 2009
Wednesday, July 15, 2009
Comments on June Industrial Production
The Federal Reserve has issued its first estimate of June industrial production. Outside of a rise in output of utilities, which of course means almost nothing for the trend of general economic output, there was no special good news here. Here is the link: INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION. Wall Street cheerleading aside, the two stock market leaders for 2008 are strangely both flat (Wal-Mart) and down (McDonald's) today.
Financials are up, reflecting the massive subsidies the Fed and the Feds have provided to the big banks and brokerages.
The country is at levels of capacity utilization not seen since the Great Depression, it appears. Assuming that cyclical factors push the economy upward, it will take extraordinary effort on the part of the Fed and the Feds to create a significant debasement of the currency (i.e. inflation) over the short term. Here is a portion of the first table in the Fed's release. Compared with 2002 (a weak year for the economy), the index is 5% lower despite a population that is probably 7% larger. This is a miserable showing on a per capita basis and is the opposite of what is seen in secular bull markets, a la the 1950s.
Copyright (C) Long Lake LLC
Financials are up, reflecting the massive subsidies the Fed and the Feds have provided to the big banks and brokerages.
The country is at levels of capacity utilization not seen since the Great Depression, it appears. Assuming that cyclical factors push the economy upward, it will take extraordinary effort on the part of the Fed and the Feds to create a significant debasement of the currency (i.e. inflation) over the short term. Here is a portion of the first table in the Fed's release. Compared with 2002 (a weak year for the economy), the index is 5% lower despite a population that is probably 7% larger. This is a miserable showing on a per capita basis and is the opposite of what is seen in secular bull markets, a la the 1950s.
| 2009 | 2009 | June '08 to June '09 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Jan.[r] | Feb.[r] | Mar.[r] | Apr.[r] | May[r] | June[p] | Jan.[r] | Feb.[r] | Mar.[r] | Apr.[r] | May[r] | June[p] | ||
| Total index | 100.1 | 99.4 | 97.7 | 96.9 | 95.8 | 95.4 | -2.2 | -.8 | -1.7 | -.7 | -1.2 | -.4 | -13.6 |
| Previous estimates | 100.2 | 99.4 | 97.6 | 96.9 | 95.8 | | -2.1 | -.8 | -1.8 | -.7 | -1.1 | ||
| Major market groups | |||||||||||||
| Final Products | 103.4 | 102.8 | 101.6 | 100.6 | 99.4 | 99.0 | -2.6 | -.6 | -1.2 | -.9 | -1.2 | -.4 | -10.7 |
| Consumer goods | 98.6 | 98.7 | 98.3 | 97.8 | 96.8 | 96.5 | -2.0 | .1 | -.4 | -.5 | -1.1 | -.3 | -7.9 |
| Business equipment | 115.7 | 113.8 | 110.4 | 108.3 | 106.2 | 105.4 | -4.2 | -1.7 | -3.0 | -1.9 | -1.9 | -.8 | -17.8 |
| Nonindustrial supplies | 94.7 | 93.2 | 91.3 | 90.5 | 89.7 | 89.7 | -1.9 | -1.5 | -2.0 | -.9 | -.9 | .0 | -15.1 |
| Construction | 85.8 | 84.7 | 82.4 | 81.1 | 80.8 | 80.7 | -3.7 | -1.4 | -2.7 | -1.5 | -.4 | -.2 | -20.7 |
| Materials | 99.0 | 98.4 | 96.3 | 95.9 | 94.6 | 94.0 | -1.9 | -.6 | -2.1 | -.5 | -1.3 | -.6 | -15.8 |
| Major industry groups | |||||||||||||
| Manufacturing (see note below) | 97.8 | 97.7 | 96.0 | 95.4 | 94.3 | 93.8 | -2.8 | -.1 | -1.8 | -.6 | -1.1 | -.6 | -15.5 |
| Previous estimates | 97.9 | 97.8 | 96.0 | 95.4 | 94.4 | | -2.7 | -.1 | -1.9 | -.6 | -1.0 | ||
| Mining | 102.8 | 101.1 | 98.4 | 96.3 | 94.4 | 94.0 | -.6 | -1.6 | -2.7 | -2.1 | -1.9 | -.5 | -10.4 |
| Utilities | 111.5 | 106.4 | 106.1 | 105.8 | 104.4 | 105.1 | .2 | -4.5 | -.3 | -.3 | -1.3 | .8 | -3.9 |
Copyright (C) Long Lake LLC
Tuesday, May 19, 2009
Cash is Trash When You Can Make 8% in One Day As Your Company Lowers Its Sales Guidance
Lowe's, a well-regarded chain of home improvement items, reported Monday. Earnings c/w last year were down from $0.42 to 0.32/share. SG&A rose a substantial 219 basis points. The company lowered its sales estimate for the year ending Jan. 2010 marginally, still about no sales growth projected, but for some reason the company insists on opening lots of new stores, even though same store sales growth has been and is projected to be sharply down.
In keeping with the times, readers will not be surprised to learn that about 16 years of interest on 2-year Treasury bills were "earned" in one day by holders of Lowe's stock, which rose 8% in one day.
Markets are moving divorced from fundamentals.
To demonstrate how hard it is to predict the future, Zero Hedge reported Monday in The Japanese don't think the crisis is THAT bad that at least for the past 27 years, consumer confidence in Japan has been virtually continuously below the neutral 50 mark.
What we know about the present is that in order for PPIP to be implemented, the Government must certify that an emergency exists to allow the FDIC to backstop the giveaways to the hedge funds. The markets are acting as if there is no emergency. Yet the Federal Reserve, which is either a public institution when it is convenient to be that and a private institution when that is convenient, and which for some reason has been granted the right to print Federal Reserve notes that are used as "money", is printing money to help finance the Federal debt and the mortgage markets, while Federal revenues plummet and Federal expenditures skyrocket.
On a mark-to-market basis, what is the Fed's net worth? How leveraged is it?
We may not want to learn this answer that the Fed will in any case not willingly tell us.
Copyright (C) Long Lake LLC 2009
In keeping with the times, readers will not be surprised to learn that about 16 years of interest on 2-year Treasury bills were "earned" in one day by holders of Lowe's stock, which rose 8% in one day.
Markets are moving divorced from fundamentals.
To demonstrate how hard it is to predict the future, Zero Hedge reported Monday in The Japanese don't think the crisis is THAT bad that at least for the past 27 years, consumer confidence in Japan has been virtually continuously below the neutral 50 mark.
What we know about the present is that in order for PPIP to be implemented, the Government must certify that an emergency exists to allow the FDIC to backstop the giveaways to the hedge funds. The markets are acting as if there is no emergency. Yet the Federal Reserve, which is either a public institution when it is convenient to be that and a private institution when that is convenient, and which for some reason has been granted the right to print Federal Reserve notes that are used as "money", is printing money to help finance the Federal debt and the mortgage markets, while Federal revenues plummet and Federal expenditures skyrocket.
On a mark-to-market basis, what is the Fed's net worth? How leveraged is it?
We may not want to learn this answer that the Fed will in any case not willingly tell us.
Copyright (C) Long Lake LLC 2009
Thursday, March 19, 2009
From America to Zimbabwe: One Country May Start Living Within Its Means
Zimbabwe's new finance minister halves spending
By Tony Hawkins in Harare
Published: March 19 2009 02:00 Last updated: March 19 2009 02:00
Tendai Biti, Zimbabwe's new finance minister, yesterday halved spending plans for 2009 and cut revenue projections 40 per cent, in one of the first signs of change under the country's new power sharing government.
Presenting his first budget to parliament, Mr Biti, a member of the Movement for Democratic Change, said the government would now operate on a cash budget basis: "What we gather is what we eat," he said.
-Financial Times.com
As the U.S. joins the U.K. and Japan in creating fiat money out of thin air, thus overtly ratifying once again why going off the gold standard is important for the Merchants of Debt, Zimbabwe has gotten some religion.
Things are different in the former citadel of capitalism, however.
Yesterday, the Fed issued a press release that contained statements worth commenting on:
. . . Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
DoctoRx here. The statement does not even evidence deflation. The overt statement by the Fed that low inflation will not foster price stability in the longer term is ridiculous. My translation of this language: "The Fed is overtly out to gin up another inflation, thus allowing all the Federal, Agency and other debt to be paid back in cheaper nominal dollars."
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.
Translation: "'All available tools' means whatever it takes to keep the financial community well-fed, no matter what the state of the economy, the level of inflation, or even the legality of our actions."
To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
Translation: "We have no sense of discipline. In addition, we have decided to support the one major part of the economy, the residential housing market, that has no effect on the competitiveness of the U. S. economy internationally, with unlimited sums. Further, we are doing this for two reasons: we have given up any pretense of independence from our creators, the Federal Government; and we must keep our buddies on Wall Street afloat."
The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.
Translation: "We can hardly keep track of all the lending facilities we have created. Our philosophy is that debt without end is the solution for a crisis caused by too much debt. We also have little interest in whether the Federal Reserve is financially sound, so we will continue to add to our holding of , thus commemorating the one-year anniversary of the Bear, Stearns/JPMorgan Chase bailout wherein we put Bear's junk mortgage-backed securities on our balance sheet and lied through our teeth to Congress that these assets were ultra-high quality."
The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.
Translation: "We're loving living large!"
We now know why Barack Obama has no concerns about both saving the financial companies, reforming health care, etc., etc., despite projecting a cash deficit for his first proposed budget of about $2 Trillion. By directly monetizing the Federal debt, Ben Bernanke has secured his renomination by demonstrating that he will play ball with any President if that President plays ball with Wall Street.
Copyright (C) Long Lake LLC 2009
By Tony Hawkins in Harare
Published: March 19 2009 02:00 Last updated: March 19 2009 02:00
Tendai Biti, Zimbabwe's new finance minister, yesterday halved spending plans for 2009 and cut revenue projections 40 per cent, in one of the first signs of change under the country's new power sharing government.
Presenting his first budget to parliament, Mr Biti, a member of the Movement for Democratic Change, said the government would now operate on a cash budget basis: "What we gather is what we eat," he said.
-Financial Times.com
As the U.S. joins the U.K. and Japan in creating fiat money out of thin air, thus overtly ratifying once again why going off the gold standard is important for the Merchants of Debt, Zimbabwe has gotten some religion.
Things are different in the former citadel of capitalism, however.
Yesterday, the Fed issued a press release that contained statements worth commenting on:
. . . Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
DoctoRx here. The statement does not even evidence deflation. The overt statement by the Fed that low inflation will not foster price stability in the longer term is ridiculous. My translation of this language: "The Fed is overtly out to gin up another inflation, thus allowing all the Federal, Agency and other debt to be paid back in cheaper nominal dollars."
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.
Translation: "'All available tools' means whatever it takes to keep the financial community well-fed, no matter what the state of the economy, the level of inflation, or even the legality of our actions."
To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
Translation: "We have no sense of discipline. In addition, we have decided to support the one major part of the economy, the residential housing market, that has no effect on the competitiveness of the U. S. economy internationally, with unlimited sums. Further, we are doing this for two reasons: we have given up any pretense of independence from our creators, the Federal Government; and we must keep our buddies on Wall Street afloat."
The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.
Translation: "We can hardly keep track of all the lending facilities we have created. Our philosophy is that debt without end is the solution for a crisis caused by too much debt. We also have little interest in whether the Federal Reserve is financially sound, so we will continue to add to our holding of , thus commemorating the one-year anniversary of the Bear, Stearns/JPMorgan Chase bailout wherein we put Bear's junk mortgage-backed securities on our balance sheet and lied through our teeth to Congress that these assets were ultra-high quality."
The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.
Translation: "We're loving living large!"
We now know why Barack Obama has no concerns about both saving the financial companies, reforming health care, etc., etc., despite projecting a cash deficit for his first proposed budget of about $2 Trillion. By directly monetizing the Federal debt, Ben Bernanke has secured his renomination by demonstrating that he will play ball with any President if that President plays ball with Wall Street.
Copyright (C) Long Lake LLC 2009
Friday, January 16, 2009
Industrial Production and Inflation
The St. Louis Fed shows a graph of industrial capacity utilization with recession overlay:
In addition to this graph, see the Federal Reserve press release with the raw numbers on industrial production and capacity utilization.
It strikes one that at the left of the graph, the tremendous inflation during the "surge" in Viet Nam and the inflation that followed the victory of the Communists was in part caused by and presaged by the very high capacity utilization numbers. As the graph goes to the right, one sees a series of "lower highs". If this were a chart of a stock or a commodity, one would see downside risk and no clear bottom, given that the latest % utilization, 73.6%, is near that of the 1982 low, but the 1979 high in utilization of about 87% was not even approached this decade. It is possible that a "test" of the 1982 low in % utilization is baked in the current economic cake. Whether a definitive new low below 70% will be made will be important to see.
In any case, the hypothesis here is that the secular disinflation/deflation trend is intact and will be strongly supported should capacity utilization break to a new low below the 1982 low. Utilization levels below 80% have not been associated with significant ramp-ups in inflation.
As more factory space opens up in the U.S., China and other low-end exporters will have to cut prices and shipping costs will have to remain low, or else economics (plus domestic U.S. politics) will cause more production to remain home or come home.
This chart is a major negative for bulls in the China shop. The "surprises" continue to be on the downside, as predicted by Nouriel Roubini. When they stop, any stock rally that may well occur after Mr. Obama gives his inauguration address and the economic stimulus/recovery plan is signed/hyped will be outweighed many times. Unfortunately, if Dr. Roubini is correct, there are months of dreary and depressing economic numbers to come.
Copyright (C) Long Lake LLC
In addition to this graph, see the Federal Reserve press release with the raw numbers on industrial production and capacity utilization.
It strikes one that at the left of the graph, the tremendous inflation during the "surge" in Viet Nam and the inflation that followed the victory of the Communists was in part caused by and presaged by the very high capacity utilization numbers. As the graph goes to the right, one sees a series of "lower highs". If this were a chart of a stock or a commodity, one would see downside risk and no clear bottom, given that the latest % utilization, 73.6%, is near that of the 1982 low, but the 1979 high in utilization of about 87% was not even approached this decade. It is possible that a "test" of the 1982 low in % utilization is baked in the current economic cake. Whether a definitive new low below 70% will be made will be important to see.
In any case, the hypothesis here is that the secular disinflation/deflation trend is intact and will be strongly supported should capacity utilization break to a new low below the 1982 low. Utilization levels below 80% have not been associated with significant ramp-ups in inflation.
As more factory space opens up in the U.S., China and other low-end exporters will have to cut prices and shipping costs will have to remain low, or else economics (plus domestic U.S. politics) will cause more production to remain home or come home.
This chart is a major negative for bulls in the China shop. The "surprises" continue to be on the downside, as predicted by Nouriel Roubini. When they stop, any stock rally that may well occur after Mr. Obama gives his inauguration address and the economic stimulus/recovery plan is signed/hyped will be outweighed many times. Unfortunately, if Dr. Roubini is correct, there are months of dreary and depressing economic numbers to come.
Copyright (C) Long Lake LLC
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