The Fed Cannot Move Without a Crisis… And One is Coming
Well the Fed disappointed as I stated it would. How anyone could be surprised by this is beyond me. The Fed was admitting that the consequences of QE rendered it less “attractive” as an option as far back as May 2011.
Moreover, the last six months have shown the Fed to be relying heavily on verbal intervention rather than direct monetary intervention. Every FOMC meeting (and any time the market takes a dive) some Fed official steps forward and promises that the Fed stands ready to help if needed.
The reasons for this are three fold:
1)
Why bother with monetary intervention when you can get the same effect from verbal intervention?
2)
The Fed is too politically toxic now to simply unveil a massive new monetary scheme without a Crisis hitting first.
3)
The Fed is well aware of the consequences of QE (higher food and gas prices) and while it focuses on CPI as the measure of inflation, the political pressure engendered by higher costs of living are certainly on the Fed’s radar.
In plain terms, the bar for more QE is set much, much higher than the vast majority of analysts realize. The reason is that the Fed can no longer simply prime up the printing presses if the economy takes a dip.
We’ve seen this clearly in the last two Fed FOMC statements, in which the Fed downgraded its view of the US economy to posting “modest growth” (Fed speak for next to none) and then offered a “highly accommodative stance,” (Fed speak for “we’re out of ideas but can always hit the ‘print’ button”) as way of dealing with this.
Let’s cut the BS here. The Fed has maintained a more than highly accommodative stance for three years now and U-16 unemployment, food stamp usage, home prices, and virtually every other economic metric indicate that they’ve done little to boost the US economy in any meaningful way. QE has and always will be about boosting asset prices in the hope that the Fed can stimulate a recovery by getting the S&P 500 to some level.
The only problem with this is that people don’t engage in financial speculation to pay their bills. Incomes have and always will be the single most important metric for gauging consumer strength. And as the below chart from Morgan Stanley shows, the Fed’s policies of the last few years have done nothing to boost incomes (unless you work on Wall Street).
This chart goes a long way towards explaining the current political environment in which the Fed is about as popular as the bubonic plague. If you read headlines stating “Fed Gave Trillions to Banks” and you’ve been laid off and are living off food stamps, your blood pressure might tend to rise.
And you might tend to vote based on that.
Folks, the reality is that the Fed’s hands are tied. That’s why they keep issuing these innocuous policies (keeping interest rates low until 5056 or some insane future date) without actually doing anything. They know that additional easing means inflation soaring, which makes the Fed that much more a target of popular outrage.
So if you’re counting on the Fed propping the market up throughout 2012 as it did in 2011, you may be in for a rude awakening in the coming months. Every day that we get closer to the 2012 Presidential election, the bar for more QE goes higher and higher. Truly unless we get some kind of major Crisis, the Fed won’t be doing much of anything.
So let the traders run their “end of the month” games this week. But don’t be surprised if stocks start to take a dive in early February.
If you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.
Good Investing!
Graham Summers
PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.
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And here's the sledgehammer winding up to come down on us!
Baltic Dry Index Continues To Collapse Down Another 3.94%The fact is that there is a "crisis" that must be addressed by more QE. This is an election year and for the first time in recent history, all the incumbents are behind the eight ball, from both "parties". Only the appearance of a sustained recovery will save the incumbents, so there will be more stimulus and more hopium peddled until November. Look for the stock market to rally strongly from Aug-Nov.
4 words.
Gold Standard.
Glass-Seagull.
I am not at all looking forward to any crisis, much less the one that probably will appear. I much prefer the situation where money [fiat] retained it's value and did not lose purchasing power at all. Also a savings rate of 5% that would compensate for risk when loaning capital and would encourage savings. When neither of these bare minimum situations for relative prosperity exist, be looking over your shoulder, constantly...
Why is everyone so fucking afraid of another crisis?
The ONLY way we will return to sound money is through another crises and failed crises response.
The solution to our problems IS collapse!!!
Of course, if you believe that along with such a crises comes dictatorship, murder, incarceration, and any number of untold attrocities, then we all might as well off ourself right now and get it over with.
Personally, a complete reset of the global fiancnial system and the attendant risk of such an earth rocking event, gives me a fucking hard on.
It sure the hell beats living in a state of suspended animation, where there are no markets at all.
You might have a priapic misfire in the Pituitary gland if you get woodies and anything but, say, the sumptuous butt of Sofia Vergara, or her bodcaious ta-tas---- assuming you are a lesbian or male.
If financial mayhem and disaster are arousal mechanisms for you, then somewhere along the way your perspective has been misunderestimated.
A one or two month increase in the "unemployment rate" is all that is needed to spark a crisis triggerring QE3.
Really?
This is a typical example of the frog in the cool pot of water, with the heat then turned on till he croaks. It could take a long time. He is already in a very critical situation. But he doesn't know it.
We are so used to being in a constant, steady-state of crisis that pundits like yourself think we aren't.
It's not a crisis that the Fed needs; it is a monumental disaster that is needed. And the odds of a huge Tidal wave overwhelming the FED are long shots. The odds extremely high.
The gamble then is to forsake thoughts of calamitous events and embrace the relative calm.
They have announced no Inflation thru 2014. I believe them. And am betting accordingly.
Uhh.... the Fed promised that interest rates would stay at basically zero through 2014. Not at all the same thing as "no Inflation thru 2014".
Only way to keep interest rates at essentially zero is to buy up all the junk financial "collateral" the banks want to offload, which floods the world with lots of created out of thin air fiat money. If the money supply dramatically increases while all else stays essentially the same (including velocity of money), then the nominal fiat money price of something is going to go up - a lot.
If velocity of money plunges because the world basically locks up, that is another very unpleasant outcome.
Actually it was an announcement of zero inflation. If the Fed and the US government say there is no inflation then there is no inflation. Where have you been the last several years when there was no inflation in 2008, 2009, 2010, and only 3.5% in 2011? Get it? They said there was no inflation so there was no inflation, and if you or I see food and fuel expenses skyrocketing then we are either crazy or just shopping in the wrong places at the wrong times. They now have a measure of inflation that is so manipulated and perfect for their needs that an apple (fruit not iPad) could go to $200 and it will not trigger any reaction at the fed or in government. When Bernanke said the target will be 1-2% you can bet all you have on inflation data being 1-2%.
Velocity is a result, no? It is the getting and spending at ever increasing rates of speed that I don't see happening with employment, the main and for 99% the ONLY vehicle for the proletariat to obtain money.
Nope. Without employers chasing people down to hire them, instead of vice versa, there will be no 'velocity' of any consequence, and therefore no inflation AS THE FED defines it.
how does the fed define my price for bread
Exactly, a big crisis is coming.
The earth will stop spinning on its axis, too. In about a several billion years.
Yes but everyone in the markets will have their pants on the ground one morning far sooner than in several billion years, I guarantee that!
O great a prediction that something globally catastrophic will occur in LESS than a Billion years. You should get a job with Larry Summers or Carnak the Magnificent
http://upload.wikimedia.org/wikipedia/en/thumb/2/21/Carnac.jpg/220px-Carnac.jpg
Turning this tub around is impossible, the only way out is through the necessary actions for survival and it will come to that point with the attendent chaos and destruction that accompanies disaster. There is no other way out....
without doubt the fed has failed abjectly to improve the economy of the little people....however, it has succeeded spectacularly in enriching the accounts of the banksters who DELIBERATELY staged this economic crisis....
if the totalitarian police state needs more money for more wars of foreign aggression or to murder vast tracts of the usa population, the fed will accomodate....
I used to think the Fed needed a reason to ease and would manufacture or allow a crash to make this more accommodating. Now I think they don't give a shit as they have possibly come to the realization that the next turn in the markets may not be defendable. I think they are in "last stand" mode now.
They're not in "last stand" mode yet...not while they can still create funny money to steer the markets! They might have been waiting for the $1.3 trillion debt ceiling increase before making their plans to influence markets. Also, the real "crossroads" date is March 20th when Greece gets called on the carpet on rolling over debt. You have to consider Europe when framing a game theory about what the Fed might do...they're still the only show in town (or on the Globe) when it comes to creating new fiat. The ECB is impotent in that regard. Beware the Ides of March...I'm thinking that will be a major inflection point.
The Federal Reserve isn't the only guilty party. Obama and the Congressional scoundrels spend every cent they possibly can. The entire capital of the United States is being confiscated by the rich.
The capital of the United States is being confiscated by the Oligarchs because the Capitol of the United States has been confiscated by the Oligarchs.
ooops. Duplicate..
Graham your three points are well taken, but i think you've missed most importantly, the interest on the debt must be kept in check lest we break the Treasury. This will come in time, as long as the Fed has it's back the govt can continue it's Ponzi.
Eventually, not Feb for sure, the Fed is apt to lose control, then the mother of all interest rate hikes will ensue and phase II of the Great Recession can take hold. Thats when your gold will be worthwhile.
Timing the rate explosion is not possible, it's foreseeable. The housing implosion was in the cards in twenty o three but it took 4 more years to unfold. A friend from NY called me then and told me it was immanent. I believed him and loaded up on properties in Ca and Hi anyway and sold all but one by the end of 2006. It was too tempting, just never go overboard and you can remain solvent.
I tried betting against the Fed with TBT but gave up last fall. Buying Deep OTM puts as suggested will bleed you to death while you wait for the inevitable. The Fed has so much power at it's disposal it's impossible to say when they will lose control. The nice thing is that we have a load of realtime models of the implosion running in slow motion right now in Europe. Keep watching what happens to the Little PIGGS to see how to play this.
There is plenty of time, the powder is loaded, the ball is being rammed, the trigger is not yet cocked, but will be soon.
nice post
Yes.
Could have reset back in 08 with horrendous pain but that window of opportunity has long passed.
Good luck to us all!
Impatient Americans want armageddon now. Relax fools, Graham is correct. It's a process that takes more than a few nanoseconds.
Anyone who wants amageddon is a nut case. Still, armageddon is likely to occur. What form it takes or how it will affect the public as a whole is debatable. Will it be a soup line depression or a full blown mad max scenario I couldn't say. One thing seems certain, the dollar will not survive. How the government handles that should be the real question.
Soup lines? You mean SNAP recipients...50 million are already in soup lines. Mad Max is when the card stops working. At least for a little while.
Soup line OR Mad Max? From where I am watching this endless drama play out it obvious to me we can have both at the same time, and we are already well on our way.
Water, food, guns, ammo, gas generator, solar generator, gold, silver, cash. Go to work.
Nobody talks about the real economic destruction of the FED policy. I have approx $750,000 in savings. If I could earn a safe 4% on my savings or $30,000 per year and added to my social security would give me income of $50K per year, enough to live a life of dignity. Instead I am forced to deplete savings, curb spending and pay no taxes on interest income. The depleting savings is a drag on the economy perpetually as the amount of positive capital in the system declines. As inflation increases rapidly the savings will deplete even faster. There will be nothing to pass on to heirs if I live long enough which is a drag on future growth. All of this real wealth destruction is the legacy of Bernanle. And please don't tell me to invest in manipulated risk assets. 70% of the trades last year were held less than 11 seconds. I'm not looking for 10%, just a fair and reasonable 4-5%. There are a lot of people in my age group in the same situation and much worse. I support Ron Paul because for the first time in my life we have a guy who understands money and sound fiscal policy. This may our last chance to save what's left of america
A succinct, beautiful, and tragic post. The voice of a dying country.
I will take about 10 years worth of living expenses, cut costs' no debts and have a little each year for yourself.
Sink the rest into Gold and Silver and wait a year or three.
It's all paper until you convert it into a asset.
And I am doing the exact same myself. I have to do it for several people in my home. Thanfully we are all working together on the same goals.
A bit of perspective. A month in the burn ward can eat about 200,000 right there. Physical therapy, medicines and what have you will take twice more and a year.
At any time you can be hurt as to be shipped involuntarily to a nursing home and that 750,000 will vanish in a little more than a few years.
I fix my own paper cuts instead of incurring a automatic 700 dollar entry into a ER and add Doc , lab, medicines, cultures etc etc etc etc etc to that. The last time I had to go cost me a cool 5K fortunately insurance picked it up. Some of those needles entering my skin was running me anywhere from 50 to 500 dollars each dose.
It's easier and cheaper to keep a Datsun or a 70's car going these days than to try and fix something broken in your body.
You own paper, not money.
I do too, and I will take all that same paper you don't want right here, right now.
well its pretty obvious after an Euro crisis, china recession, Japan's economic outlook. The world is global village economy and it is pretty hard to stay isolated from these events, surprisingly this announcement has not come sooner.
http://www.ecomm-unity.com/group/financial-crisis-worldwide
That graph is a real eye-popper ... "What is is?" ... debt-deflation ... that is only just barely beginning.
It's really hard to win a pissing contest against a skunk.
If the OP's (Original Poster's) initials are GS (Graham Summers, Goldman Sachs), you know the content already.
ZIRP is QE. It is like the "Dan Quayle" bonds, perpetual zero-coupon: no interest and no maturity. I wish I was a bank so I could borrow from the Fed at zero percent and clip coupons off various sovereign instruments until maturity or default. I also want to be a TBTF Bank so the Fed would accept my least credit-worthy pieces of paper (and assume all credit risk) as collateral for more loans.
A fine business it is to earn lots of interest in money that never existed! Tempting as that sounds, I will not be happy with the measly returns on US, Portugese and Greek bonds. Since I am fail-safe, I can ratchet up the risk, collect higher returns, and if the pork bellies or S&P futures move against me, then Uncle Ben or Uncle Timmy will help me out.
Is this a great country, or what? I wonder how long could this racket go on. Will the FBI or Navy SEAL Team 6 show up one day and close down the dens of these financial terrorists?
"Will the FBI or Navy SEAL Team 6 show up one day and close down the dens of these financial terrorists?"
lol - of course not - but they may show up at your door one day and put you in jail for calling the owners terrorists.
The best guy on ZH said it, his name is WB7:
The only vay, is the Chinese Downhill (or teh American one)
I'll repeat my hypothesis that there is in fact some sense of timing on all of this.
I believe that it's more than clear to everyone now, even PhDs! The housing market is very connected to the economy. As such, I believe that the Fed HAS to (believes that is has to) force interests to stay low until the last big ARM resets.
Interesting interactive tool: http://www.loancentral.com/ARMresets
That shows that in 2012 we might be fairly clear of the ARM reset issue. If this is the case then we might expect interest rate increases: yes, the Fed said not until 2014, but since when do they announce what they are going to do well in advance? Complicating matters is the fact that this is an election year.
pheonix = qe forever?
Someone is sure buying crappy paper, like US treasuries for instance, at a much higher price than any sane investor would pay. If not the Fed, or their hatchet men, then who? When is QE3 not QE3? Perhaps when you dont announce it, and do it through a cat's paw?
On the other hand, he does have a valid point. Pay is going down, and prices are going up. As Joe Sixpack loses his house, and TV, he will start paing attention to the fact his beer prices are going up way faster than 3 percent a year. Bring on the price controls, and the shortages Barry.
Joe six pack is waking up, and its not to the price of his beer. Not only is he waking up, he is fully loaded.
Almost everone has boarded the QE express. This is helicopter Ben afterall, and what we know is that he wii punch the button. At least, that is what we have come to believe as a truism.
Bernanke's days are numbered as the chairman. As the Republican debates drag on, more and more people are being exposed to the downside of cheap credit and a policy that discourages savings and encouages risk taking.
If household savings rates were 15%, housing had fully deflated, and private sector deleveraging had really run it's course, then an activist Fed might be able to reignight an organic recovery without the moral hazard caveat. Instead, these ultra easy money policies are being carried out when savinngs rates are near all-time lows and wealth disparity is near all time highs.
END THE FED
Gee, I wonder what strategy that worked in 2008 he could be talking about? Maybe buying out of the money puts on consumer stocks, and transport? Oops guess no one will have to buy your newsletter now. Sorry dude.
QE3 started in August. Look at M2. Look at how very clearly Bernanke justified throwing savers under the bus when asked about it specifically. Look at how they are printing money for the EU.
The only thing the fed disappointed in was their language on QE. Their actions are full throttle printing. That's why gold and especially silver lept starting right at 12:30.
Graham, you are blind. Shut off cnbc and open your eyes.
Anyone else think it quite amazing that Bernanke said several years ago that if anything like, you know, NOW ever happened, then the US had this technology called a printing-press, and as many helicopters as necessary.
And ever since 2008 the Chartelista MMT-bots have been saying the FED is not REALLY printing money!
And, it's also not REALLY capable of being price-inflationary ... at this stage ... just asset-inflationary ... yeah ... because dah pRiCE gOeZ uP!
So .... then, it apparently may become 'money' ... if it is ever spent ... and can thus then be considered to have been printed!
WTF!?
There's nothing to compare with a FED fan-buoy's en-echelon levels of denial.