I often get the feeling that traders and investors have put too great a trust in the monetary magic of the Federal Reserve.
The September PPI, TICS and speeches from Fed officials
Gold has fallen in all currencies today as equity and commodity markets have seen weakness due to concerns about Chinese economic growth after China's economy eased somewhat. Germany’s pouring cold water on the likelihood of a speedy resolution of the euro zone's debt crisis and the summit this weekend has also increased market jitters. Gold continues to be correlated with equities in the short term but we are confident that this correlation is short term in nature and the inverse correlation between gold and equities and bonds will again be seen in the medium and long term. Peripheral European debt markets are showing weakness again. The recent trend of falling yields appears to have ended which is worrying. Should yields begin to rise again this should create added safe haven demand for gold. UK inflation rose to match a record high of 5.2% (CPI) and retail price inflation (RPI), a measure of the cost of living used in wage negotiations, accelerated to 5.6% (from 5.2%), the highest since June 1991. The figures were again worse than expected by the BoE, economists and many economic experts who have been underestimating the threat of inflation for some time. The BoE, like the Federal Reserve, continues to follow an ultra loose monetary policy in an effort to boost an economy teetering on the brink of a double dip recession.
Commemorating The 99th Anniversary Of The First Ever Vampire Mollusc, Or How William Banzai Met His MatchSubmitted by Tyler Durden on 10/17/2011 18:25 -0400
What is oddest about the below cartoon is how, in retrospect, it was absolutely spot on one 1 year ahead of the formation of the Federal Reserve, and shortly, about one century ahead of its destruction. We are happy to see that even William Banzai may have finally met his match, even if the temporal displacement is modestly skewed.
Better late .....here is all you need to read.
Hark - either the end is nigh, or we are about to see one of the biggest market melt-ups in history: the man who conceived, developed, and distributed the Birinyi Ruler to a Comcast financial comedy cable channel near you, and to late night comedy in financial circles everywhere, is no longer a Bull. He is merely a bull, which is the also the first word one may apply to another very appropriate word to describe his predictions from early on in the year. For those who have their ultrasound babel fish on, here it is: "The S&P 500 has been perilously close to a 20 per cent decline in recent weeks which would, by definition, terminate the bull market which began in March 2009. Given the economic circumstances and the continuing political turmoil on both sides of the Atlantic, most commentators believe it is only a matter of time before such a landmark is reached. Having been bullish, I am – as expected – disappointed but not undaunted. I remain bullish if only now with a lower case “b”. Some months ago I conceded that making market forecasts was increasingly difficult as they entailed an understanding of American politics, Chinese monetary and financial policy, Greek and Italian attitudes, German elections in addition to the usual economics, corporate developments and actions and comments by the Federal Reserve Board." Obviously, all these are superfluous 'things' that a man of Birinyi's intellect should not need to be concerned by. After all, what is good is the 'ruler' for if not to predict the future? But before you go ahead and pledge a 4th lien on your 3rd born to go all in stocks, here is the Notorious BIGGS, who bottom ticked the market a few weeks back with laser-like precision : "Barton Biggs Increases Bullish Bets in Traxis Macro Fund to 65%." Needless to say, every time Biggs has done something, the market has done the opposite. So for all those confused what they should do when two of the market's most hilarious permabulls say the opposite things, fear not - i) you are not alone, and ii) just buy a collocated vacuum tube-based algo, and watch as the High Frontrunning Trading algo makes you rich beyond your wildest dreams.
Ron Paul Proposes Elimination Of Education, Energy Departments, Lowering Presidential Salary To $39,336Submitted by Tyler Durden on 10/17/2011 09:57 -0400
Today at 3pm on Las Vegas, perpetually ignored by the media on both the left and right presidential candidate Ron Paul will announce details of his $1 trillion proposal in government spending cuts, which will be the start of a process to balance the Federal budget in three . As Politico reports, "the Texas congressman will lay out a budget blueprint for deep and far-reaching cuts to federal spending, including the elimination of five cabinet-level departments and the drawdown of American troops fighting overseas." Amusingly, and if there is anything that will Paul brownie points with an electorate disgusted by those spreading hypocritical class warfare, "there will even be a symbolic readjustment of the president’s own salary to put it in line with the average American salary." Which will simply make it a given that every president going forward will have at least three laid off Hollywood scriptwriters preoccupied as ghost writers and writing presidential "autobiographies." For the royalties. But we digress. "The federal workforce would be reduced by 10 percent, and the president’s pay would be cut to $39,336 — a level that the Paul document notes is “approximately equal to the median personal income of the American worker.” We somehow doubt that even Paul will go as far as proposing a much needed overhaul of campaign finance, which basically forces every politician to wear sponsorship tags of all the Wall Street banks that have "gifted" a given politician and/or president in the past 5 years, but we can surely hope.
It's not just uninformed people who want to end the Fed.
Michael Lewis' latest compilation of Vanity Fair articles into book format, Boomerang, is the usual entertaining romp around those back and front waters of the world that are currently on the verge of bankruptcy: from Greece, to Ireland, to Germany and, of course, to California. The premise at its core is an interview that the former Salomon bond salesman had with investing wunderkind Kyle Bass several years back which inspired to him to ask what it is that the Texan saw three years ago that so few others, due to a permafrosty cognitive bias or what have you, could (i.e., that the world is bankrupt and getting much worse). Oh, did we say wunderkind? We meant billionaire. Because unlike that other "anti-Midas" who only piggybacked on the good ideas, while blowing up LPs when left to his own non-Goldman Sachs facilitated devices, Bass actually could always see the big picture for what it is. So courtesy of Lewis' latest book, here are three pieces of advice from Bass to people everywhere, which will surely bring the fanatically jealous anti-gold crew to accusations that Bass made his billions from buying and reselling tinfoil hats.
Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.
A simple indicator constructed from readily available data is suggesting with great certainty that the US economy is already in a recession.
Just like goldbugs know the serial number of every single gold bar held (allegedly) in the GLD by heart, so the Federal Reserve carries a soft place in its corrupt, evil heart for fiat and the assorted trivia surrounding it. For example did you know that the Bureau of Engraving and Printing has two facilities, one in Washington, D.C. and the other in Fort Worth, Texas. Together they use approximately 9.7 tons of ink per day. So while paper money may or may not a disappearing species, here are, courtesy of the Federal Reserve, some "fun" facts about the US Dollar that readers may not be aware of as they make funeral arrangements for the endlessly dilutable combination of 75% cotton/25% linen.
David Rosenberg has issued yet another piece of blistering common sense (which most mainstream and sellside economists seem to lack in wholesale amounts these days), in which he explains why the action at the margin is all that matters for asset prices and all that follows. As he says "this is about change, not levels" - a jab directly at the Federal Reserve, whose core underlying premise is that "stock" is all that matters, whereas "flow" (or change) is irrelevant. This is arguably one of the biggest errors that Fed chairman after Fed chairman perpetuates, and further explains why the Fed will always have to be engaged in some (ever greater) form of monetary intervention in order to simply keep asset prices constant as the "stock" theory is disproven time and time again. Alas, since we are dealing with brilliant PhD Economists they will never admit their foolish theory is flawed until it is too late. In the meantime, for everyone else who does not live in Bernanke's ivory towers, here is Rosenberg's explanation why what happens at the margin is all that matters.
It was Washington and the lobbyists who created the system that Wall Street uses to profit. So Occupy Wall Street should move to DC and Occupy the Federal Reserve on the way.