As Americans, we live in two worlds; the world of mainstream fantasy, and the world of day-to-day reality right outside our front doors. One disappears the moment we shut off our television. The other, does not… When dealing with the economy, it is the foundation blocks that remain when the proverbial house of cards flutters away in the wind, and these basic roots are what we should be most concerned about. While much of what we see in terms of economic news is awash in a sticky gray cloud of disinformation and uneducated opinion, there are still certain constants that we can always rely on to give us a sense of our general financial environment. Two of these constants are supply and demand. Central banks like the private Federal Reserve may have the ability to flood markets with fiat liquidity to skew indexes and stocks, and our government certainly has the ability to interpret employment numbers in such a way as to paint the rosiest picture possible, but ultimately, these entities cannot artificially manipulate the public into a state of demand when they are, for all intents and purposes, dead broke.
And now for a word from Fireman Tim...
Nearly two years after his catastrophic foray into Op-Ed writing, here is Tim Geithner's latest, this time making the hypocritical case to "not forget the lesson from the financial crisis"... which he himself ushered on America as head of the New York Fed. Frankly we are quite sure it is not even worth reading this drivel: the unemployed man walking has been a total disaster during his entire tenure (at both the New York Fed where he supervised all the banks that subsequently fell, and the Treasury), and we are fairly confident that reading anything written by this pathological failure will cost collective IQs to drop by 10 points at a minimum. Hey Tim: is there a risk the US can get downgraded? Any risk?
This situation just can't last. Or can it?
The problem for the Fed is that interest rates are already zero, and playing around with bonds and buying more mortgages (the Fed already owns $1 trillion) is ultimately pushing on a string: the Fed can't force all the free money into productive investments, nor can it force banks to lend or consumers to spend. The cliche is "don't fight the Fed;" there is no need to "fight the Fed" because they're busy self-destructing, and all we have to do is watch. Maybe the market will follow Apple in a trajectory to the moon here. If it doesn't, a variety of other models suggests the wheels may fall off the "growth and rising profits forever" story and the market will decline to test recent lows or even hit new lows.
Today's Busy Event Roster: ISM, Lack Of Personal Income, Job Losses, Construction Outlays, and GM Channel StuffingSubmitted by Tyler Durden on 03/01/2012 09:20 -0400
Very busy day today with personal lack of savings, an ISM number which will likely beat consensus so much it will be above the highest Wall Street estimate, construction lack of outlays, Ben Bernanke speech day two, GM channel stuffing, and many Fed speakers.
- China’s Holdings of Treasuries Dropped in ’11 (BusinessWeek)
- Bundesbank at Odds With ECB Over Loans (FT)
- Euro zone puts Greece's efforts under microscope (Reuters)
- Bank of America Considers a Revamp That Would Affect Millions of Customers (WSJ)
- In Days Leading Up to MF Global's Collapse, $165 Million Transfer OK'd in a Flash (WSJ)
- Greece Approves Welfare Cuts for 2nd Bailout (Bloomberg)
- Irish Minister Pushes to Cut Bail-Out Cost (FT)
- China to Support Tech Sectors (China Daily)
- Spanish Bond Yields Fall in Debt Auction After ECB (Reuters)
- China to Expand Cross-Border RMB Businesses (China Daily)
While hardly needing a full-on onslaught by an Austrian thinker, when even some fairly simplistic reductio ad abusrdum thought experiments should suffice (boosting global GDP by a few million percent simply by building a death star comes to mind), Diapason's Sean Corrigan has decided to take MMT, also known as "Modern Monetary Theory", to the woodshed in his latest missive in a grammatical, syntaxic (replete with the usual 200+ word multi-clause sentences) and stylistic juggernaut, that only Corrigan is capable of. So sit back in that easy chair, grab your favorite bottle of rehypothecated Ouzo, and let the monetary hate wash through you.
UK Parliament Member Lord James of Blackheath Alleges 15 Trillion Dollar Fraud Involving the Fed and Imaginary GoldSubmitted by George Washington on 02/29/2012 20:55 -0400
$15 Trillion Dollar Fraud … Or Nigerian Style Scam?
Every year in February, the Treasury department releases its adjustment to foreign purchases of Treasury bond holdings as of the previous June (with revised and overriding estimates for all the intervening months in the interim, as well as previous monthly forecasts). It did that earlier today. And while many may have been expecting the revision to show that contrary to Zero Hedge claims China has in fact been building up its Treasury stake (following the now traditional transfer of UK purchases to China), the reality is that not only has China indeed been dumping US exposure (first reported by us previously when we observed the plunge in holdings in the Fed's custodial account), selling over $100 billion in Treasurys in December alone (bringing its total to $1152 billion, and down 12% from its June total of $1307 billion) but that probably far more curiously, the UK is no longer a shadow buyer of Chinese bond accumulation and instead has become a secret accumulator of Russian holdings.
Today's second most important event is the testimony of Bernanke before the House Financial Services Committee (yes, Maxine Waters will be there). Lawmakers will question him about the Fed's plans on avoiding inflation and the current unemployment rate. Committee members are also expected to inquiry about fiscal policy, the status of the nation's economic recovery, the impact of rising gas prices, and the debt crisis in Europe. Most importantly, Benny will be asked to testify on when more QEasing is coming as the markets need their fix. Watch it live at C-Span after the jump.
On this leap day, we have a busy schedule which includes the second Q4 GDP revision, Chicago PMI (expect another massive beat courtesy of consumers confident that they can have Apple apps, if not so much food, since they still don't pay their mortgages), various Fed speakers, of which most important will be Ben Bernanke who takes the podium in Congress at 10 am for his semi-annual monetary policy report.
In a previous report, Headwinds for Housing, I examined structural reasons why the much-anticipated recovery in housing valuations and sales has failed to materialize. In Searching for the Bottom in Home Prices, I addressed the Washington and Federal Reserve policies that have attempted to boost the housing market. In this third series, let’s explore this question: is housing now an attractive investment? At least some people think so, as investors are accounting for around 25% of recent home sales. Superficially, housing looks potentially attractive as an investment. Mortgage rates are at historic lows, prices have declined about one-third from the bubble top (and even more in some markets), and alternative investments, such as Treasury bonds, are paying such low returns that when inflation is factored in, they're essentially negative. On the “not so fast” side of the ledger, there is a bulge of distressed inventory still working its way through the “hose” of the marketplace, as owners are withholding foreclosed and underwater homes from the market in hopes of higher prices ahead. The uncertainties of the MERS/robosigning Foreclosuregate mortgage issues offer a very real impediment to the market discovering price and risk. And massive Federal intervention to prop up demand with cheap mortgages and low down payments has introduced another uncertainty: What happens to prices if this unprecedented intervention ever declines? Last, the obvious correlation between housing and the economy remains an open question: Is the economy recovering robustly enough to boost demand for housing, or is it still wallowing in a low-growth environment that isn’t particularly positive for housing?