And Unemployment and Inequality Are Worse Than During the Recession
Gross: #Fed to buy mortgages ‘til the cows come home. Think 7% unemployment, 2.5% inflation targets. Buy real assets…gold…a house!
— PIMCO (@PIMCO) September 14, 2012
A $4 trillion Fed balance sheet in 15 months (40% increase) and guess who is not happy. Yup, you got it.
- Weeks before U.S. election, Mideast gives Obama perfect storm (Reuters)
- Clashes intensify near US embassy in Cairo (Al Jazeera)
- Puppet governments in trouble: Mursi Risks Rift With U.S. or Voters as Islamists Rally (Bloomberg)
- Protests Put Egypt Relations on Edge (WSJ)
- Fed insists politics had no role in decision (FT)
- UBS "rogue trader" fraudulently gambled away $2.3 billion, court told (Reuters)
- Obama Holds Lead in Three Key States (WSJ)
- China's Xi recovering from bad back, could appear soon - sources (Reuters)
- Japan voices anger over Chinese incursion after vessels entered waters around disputed Senkaku islands (FT)
- Goldman Scales Back Junior-Analyst Program; No Contracts for College Hires (WSJ)
- China commentary slams Romney's "foolish" China-bashing (Reuters)
- Aging Baby Boomers Face Losing Care as Filipinos Go Home (Bloomberg)
The Fed panicked. It is extraordinary that the Fed would announce an open-ended "we'll print as much as it takes, as long as it takes" policy. Chairman Bernanke is sending a signal to the markets and to government that the economy is bad and getting worse and that the Fed will do its part as everyone expects them to do. This is a clear signal to the markets and the world that the Fed stands for monetary inflation. They don't know what else to do. Here is the fallout.
What took Ben Bernanke sixty minutes of mumbling about tools, word-twisting, and data-manipulating to kinda-sorta admit - that in fact he is lost; Ron Paul eloquently expresses in 25 seconds in this Bloomberg TV clip. Noting that "we are creating money out of thin air," Paul sums up Bernanke's position perfectly "We've Lost Control!" From mal-investment to Bernanke's frustration and the unintended consequences, the full 5-minute interview is a must-watch.
Welcome to the Fed’s Weekend at Bernie’s ...
With 20 minutes to go, we thought it timely to see the script (perhaps) for the frivolity to come. It seems like the fate of the known world is predicated on the words of a bearded academic this afternoon and whether you believe he must or must not LSAP us to Dow 20,000 (and Gold $2,000) in the next few weeks - even as the economy and jobs tail-spin - there are many questions, which Goldman provides a platform for understanding, that remain unanswered (and more than likely will remain vague even after he has finished his statement). Their expectations are for a return to QE and an extension of rate guidance into mid-2015 (and everyone gets a pony) but no cut in IOER.
Stiking South Africa Miners Set To "Bring The Mining Companies To Their Knees", Call For National StrikeSubmitted by Tyler Durden on 09/13/2012 08:55 -0400
As if Bernanke promising to print, print, print until such time as the Fed's flawed policy brings unemployment lower, which by definition will not happen when the US is now suffering not from a structural unemployment "part-time new normal" problem, was not sufficient to send gold and other hard assets higher, today we get the double whammy announcement that the situation in South Africa, already very bad, is about to get much worse. Earlier today, South Africa's striking miners, already set on belligerent courtesy with their employers and authorities, prepare to go on general strike on Sunday, in effect shutting down all precious metal production in a world that is about to demand hard asset more than ever. "On Sunday, we are starting with a general strike here in Rustenburg," demonstration leader Mametlwe Sebei told several thousand workers at a soccer stadium in the heart of the platinum belt near Rustenburg, 100 km (60 miles) northwest of Johannesburg. The action was designed to "bring the mining companies to their knees", he said, to mild applause from the crowd, which was armed with sticks and machetes."
- Italy Says It Won't Seek Aid (WSJ)... and neither will Spain, so no OMT activation, ever. So why buy bonds again?
- European Lenders Keep Ties to Iran (WSJ)
- Fink Belies Being Boring Telling Customers to Buy Stocks (Bloomberg)
- Dutch Voters Buck Euro Debt Crisis to Re-Elect Rutte as Premier (Bloomberg)
- China's Xi cited in state media as health rumors fly (Reuters)
- China vs Japan: Tokyo must come back 'from the brink' (China Daily)
- Manhattan Apartment Vacancy Rate Climbs After Rents Reach Record (Bloomberg)
- Well-to-do get mortgage help from Uncle Sam (Reuters)
- Princeton Endowment Expected to Rise Less Than 5% in Year (Bloomberg)
- Protesters Encircle U.S. Embassy in Yemen (WSJ)
- US groups step up sales of non-core units (FT)
While this and that may have happened overnight, the only thing that matters today is what the FOMC presents to a market which has now priced in well over 100% of a new easing round. Except little movement until Bernanke speaks, and with that removes any doubt that i) the Fed, like the ECB, are both political creations comprised of unelected academics, and ii) the entire modern capitalist world is nothing but a Pavlovian creation that responds only to promises of liquidity injections. Luckily, if nothing else, this will once and for all shut up anyone who claims that the market reflects the economy, it doesn't; that a "virtuous economic cycle" is possible under the new centrally planned normal, it isn't, and that the US economy is recovering 4 years after Lehman collapsed. It never did, and without $14 trillion in central bank liquidity injections over the same period, the world, as represented by the S&P, would be in a mindblowing depression, which it will still get back to once the surge in hard asset inflation offsets any incremental liquidity provided by the central planning academics as Citi warned yesterday.
Unelected bureaucrats, politicians, and bankers
By now everyone knows that the WSJ's Jon Hilsenrath is spoon-Fed information directly by the Fed. Even the Fed. Which is why everyone expected the Fed to ease last time around per yet another Hilsenrath leak, only to be largely disappointed, invoking the term Hilsen-wrath. Sure enough, it took the market only a few hours to convince itself that "no easing now only means more easing tomorrow", and sure enough everyone looked to the August, then September FOMC meetings as the inevitable moment when something will finally come out. So far nothing has, as the Fed, like the ECB, have merely jawboned, since both know the second the "news" is out there, it will be sold in stocks, if not so much in gold as Citi explained earlier. Regardless, the conventional wisdom expectation now is that tomorrow the Fed will do a piecemeal, open-ended QE program, with set economic thresholds that if unmet will force Bernanke to keep hitting CTRL-P until such time as Goldman is finally satisfied with their bonuses or unemployment drops for real, not BS participation rate reasons, whichever comes first. As expected, this is what Hilsenrath advises to expect tomorrow, less than two months from the election, in a move that will be roundly interpreted as highly political, and one which as Paul Ryan noted earlier, will seek to redirect from Obama's economic failures, and also potentially to save Bernanke's seat as Romney has hinted on several occasions he would fire Bernanke if elected. Here is what else the Hilsenrumor says.
The answer, of course, is yes: they are after all, economists (who somehow, with no real world experience, determine the daily fate of billions of productive and capital-allocation decisions every day). But it is one thing for everyone to discuss the obvious anecdotally by the water cooler. It is something else for this verbal heresy to be printed in a "serious" publication. Such as Reuters, which today asks if "the Federal Reserve has watched the U.S. recession and painfully slow recovery through rose-colored glasses?" And answers: "A look at the U.S. central bank's economic forecasts over the past five years suggest it has." It then explains: "Since October 2007, when the Fed's policy committee began giving quarterly predictions for GDP growth and the jobless rate, the central bank has downgraded its nearer-term forecasts almost two-and-a-half times as often as it upgraded them. The gap between Wall Street's expectations for 2012 growth and the Fed's own current view points to yet another downgrade on Thursday, when policymakers wrap up a two-day meeting that has world financial markets rapt." It concludes: "The trend of back-pedaling shows how poorly the central bank has fared at reading the economic tea leaves, with the Fed's optimism a likely factor in policy decisions through the Great Recession and its fallout, economists say." In summary: the world's most ebullient and permabullish forecasters, who incidentally happen to constantly be wrong in their desperate attempts to affect the only thing that matters: consumer and investor sentiment and confidence via the increasingly irrelevant myth that are asset prices, happen to run the monetary world and "determine" just what the future looks like. Needless to say, if the Fed's presidents were actually employed in the private sector, they would have been fired ages ago. Only in a fiat world do they not only keep their jobs, but keep on running the world.