Ben Bernanke

The Federal Reserve System was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. Today, the Fed has decided to commemorate the event today with all three living Fed chairman delivering remarks. We are sure it will be very exciting but in the interests of 'balance' we offer a few alternative views of the "success" of the venerable monopoly including its cost: since 1913, the dollar has lost nearly 90% of its purchasing power.

Following last night's freak central-planning accident (previously in history known as "selling") in the S&P futures, we said that "we expect Overnight Ramp Capital to arrive promptly or else confidence in central-planning may take a hit ahead of the Wednesday Taperish FOMC, and Thursday's double POMO." A few hours later, even we were surprised by how high the low volume tape managed to drag ES, which staged a dramatic 20 point comeback, on the back of a sharp reversal in FX driven higher by both a stronger Euro (helped by better than expected German and Eurozone PMIs offsetting China PMI weakness, and lack of optimism in the core Japanese Tankan) and a weaker Yen, the two key signals for E-mini directionality. Sure enough, at last check the futures we trading just why of the "independence day" 1776, after briefly breaking the 50-DMA and then being supported by 1760 in the futures. The rest is perfectly predictable central-planning history.

It is perhaps a testament to the ability of the oligarchy (that 1% which owns some 50% of all US assets) to distract and distort newsflow from what really matters, that a century after the creation of the Federal Reserve, the vast majority of Americans are still unfamiliar with the most important institution in the history of the US - an institution that unlike the government is not accountable to the people (if only as prescribed on a piece of rapidly amortizing paper), but merely to a few banker stakeholders as Bernanke's actions over the past five years have demonstrated beyond any doubt. It is for their benefit that Jim Bruce's groundbreaking movie "Money for Nothing" is a must see, although we would urge everyone else, including those frequent Zero Hedge readers well-versed in the inner workings of the Fed, to take the two hours and recall just who the real enemy of the people truly is.

"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering.  The optimistic view is an easy one.  While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital.  There is one simple truth about financial markets and investing:  what goes up must come down.   It is the downside risk that is most damaging to long term investment returns.  Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.

A major issue is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from Republicans, they both ignore a principal source of this growing disparity. The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm… dun, dun, dun… the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

Last month, we offered a plain language translation of the Warsh op-ed, because we thought it was too carefully worded and left readers wondering what he really wanted to say. Translation wasn’t necessary for Fisher’s speech, which contained a clear no-confidence vote in the Fed’s QE program. Now William Poole is more or less saying that we have no idea what’s truly behind the Fed’s decisions. But he doesn’t stop there. He’s willing to make a prediction that you wouldn’t expect from an establishment economist... Poole’s refreshingly honest take on the Fed’s inner workings – from someone who truly knows what goes on behind the curtains – is more than welcome.

The 21st century has proven interesting when it comes to Time's choices for person of the year: George Dubya, twice, Barack Obama, twice, Vladimir Putin, Ben Bernanke, and of course, Mark Zuckerberg. And now, moments ago, the Time person of the year 2013 has been revealed: the winner - Pope Francis, best known recently for bashing materialists and those who cry over a 2 point drop in stocks everywhere. Sorry Miley Cyrus - more twerking will be required in 2014 to make up for this epic loss.

“The only thing we have to fear is fear itself.”

From Bernanke's infamous 2008 "not forecasting a recession" call to Fannie Mae CEO Franklin Raines 2004 "subprime assets are riskless" commentary, the following 10 "predictions" - as opposed to Wien "surprises" - will go down in infamy for their degree of errant-ness...

We warned here (and here most recently), the most insidious way in which the Fed's ZIRP policy is now bleeding not only the middle class dry, but is forcing companies to reallocate cash in ways that benefit corporate shareholders at the present, at the expense of investing prudently for growth 2 or 3 years down the road. It seems the message is being heard loud and very clear among 'some' of the FOMC members; most notably Richard Fisher:

"Without fiscal policy that incentivizes rather than discourages U.S. capex (capital expenditure), this accommodative monetary policy aimed at reducing unemployment (especially structural unemployment) or improving the quality of jobs is rendered flaccid and less than optimally effective... I would feel more comfortable were we to remove ourselves as soon as possible from interfering with the normal price-setting functioning of financial markets."

Perhaps Yellen (and others) will listen this time?

Just out from the NYT's Fed watcher Appelbaum:

Fed’s Plan to Taper Stimulus Effort Not Expected Until Next Year

At the same time, out from the WSJ's Hilsenrath:

Fed Closes In On Winding Down Bond Purchasing

Who is right? Are both right? Are both wrong? Does anyone even care? Far more relevant is what is the Fed's price target for the Monday and year end close.

Western central banks have tried to shake off the constraints of gold for a long time, which have created enormous difficulties for them. They have generally succeeded in managing opinion in the developed nations but been demonstrably unsuccessful in the lesser-developed world, particularly in Asia. It is the growing wealth earned by these nations that has fuelled demand for gold since the late 1960s. There is precious little bullion left in the West today to supply rapidly increasing Asian demand, and it is important to understand how little there is and the dangers this poses for financial stability.

The Hong Kong branch of Spink & Son, a British firm originally founded in the mid-1600s, was putting a series of Bruce Lee memorabilia under the hammer.  When the bidding for the first lot opened, the price immediately surpassed the auctioneer’s initial estimates. It was a frenzy. Now, we know that modern auctions are supposed to be a pure form of the free market– buyers from around the world meeting for the purpose ‘price discovery’, with the item eventually going to the highest bidder. Further, economists and university finance often teach that such markets are ‘efficient’, meaning that prices always reflect the most relevant information and are hence an accurate reflection of an asset’s value. But in reality, nothing could be further from the truth. The auction was an emotional frenzy. It’s not an efficient market. It’s full of fear, euphoria, and aggression. The stock market is the same way. Even though just about every rational metric suggests that many global markets (especially the US) are absurdly overvalued, emotional investors keep bidding prices up.

Getting ready for Christmas? What’s Santa got in his sack for you this year? Well, if there’s one thing you should be preparing for, then it can only be the big crash of February 2014. 

In Bernanke's centrally-planned, inverse Robin Hood world, record stock prices for the few unfortunately mean record homelessness for the many: this is what the state of Massachusettes found out the hard way after it was flooded with a record number of homeless families who are overwhelming the state's emergency shelter system. As the Boston Globe reports, citing a recent report from the Department of Housing and Urban Development, the number of homeless people in shelters and living on the streets in Massachusetts has risen 14 percent since 2010 to a record 20,000 in January 2013, even as homelessness has declined nationally. However, in what may be the most curious twist, and yet another example of how perverted the incentive and capital allocation system in the US is, the nearly 2,100 families who could not find place in shelters, were housed in motel rooms at a greater cost to all US taxpayers amounting to tens of millions.