The Recent FOMC Minutes Should Anger Every Investor

Tyler Durden's picture

Submitted by Vedran Vuk of Casey Research,

With gold dropping nearly 3% on February 20, we at Casey Research had to look closely at the FOMC minutes, which were partially responsible for that movement. Since there are quite a few highlights, I have split this analysis into three sections: the confusion over the minutes in the market; the ambiguous language hinting at deep problems; and a few quotes to make your blood boil.

The Confusion

A Bloomberg headline from Wednesday, February 20's news reads Fed Signals Possible Slowing of QE Amid Debate over Risks. This headline is characteristic of most of the reporting on the FOMC minutes. Supposedly the Fed signaled a desire to end the quantitative easing earlier. There was actually no such signal.

The committee did, however, discuss possible reasons why they might want to end QE4 earlier. Here are some excerpts from the meeting:

"However, a few participants expressed concerns that the current highly accommodative stance of monetary policy posed upside risks to inflation in the medium or longer term."

"In this regard, several participants stressed the economic and social costs of high unemployment, as well as the potential for negative effects on the economy's longer-term path of a prolonged period of underutilization of resources. However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability."

Wow, that sounds pretty serious. It's like the Fed has turned a new leaf. Isn't this a clear signal to the market that the easing will end earlier? In a word, no. Here's the most important excerpt, which came toward the end and which many people may have breezed over or missed:

"One member dissented from the Committee's policy decision, expressing concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations."

This quote puts the rest of the comments into perspective. There was a discussion of possible risks, but at the end of day, that's all it was, a simple discussion. Although several members expressed concerns in the discussion, when it came down to voting on the actual policy, only a single member dissented.

This reminds me of our internal meetings at Casey Research. Every two weeks, the whole team – including some guest participants – gets on a conference call to discuss the economy and especially gold prices. During the meeting, some participants will voice concerns about the possibility of weaker gold prices. However, at the end of the meeting, all of us are still long gold. A discussion about a change of direction is not the same thing as an actual planned change of direction. It's healthy to have a devil's advocate in any discussion, regardless of the final decision.

Now, the fact that the Fed is discussing these problems is certainly significant; after all, they could just ignore the issues. The sheer fact that there was a discussion means there's a possibility that at some point the concerns could become more serious and then turn into action. But that action hasn't taken place yet, nor is the FOMC planning it. So while what happened in the meeting may warrant a temporary weakening in gold prices, it certainly shouldn't have resulted in Wednesday's major drop.

The Mystery

A few parts of the meeting were quite intriguing, but the purposely murky wording makes it difficult to completely nail down their meaning. It seems that the FOMC has deeper concerns than those discussed above. Here's the first of these mysterious paragraphs from the minutes:

"In general, after having been depressed for some time, investor appetite for risk had increased. A few participants commented that the Committee's accommodative policies were intended in part to promote a more balanced approach to risk-taking, but several others expressed concern about the potential for excessive risk-taking and adverse consequences for financial stability. Some participants mentioned the potential for a sharp increase in longer-term interest rates to adversely affect financial stability and indicated their interest in further work on this topic."

So what does "excessive risk-taking and adverse consequences for financial stability" mean? The next sentence on long-term interest rates offers a clue. Participants warn of a "potential for a sharp increase in longer-term rates." Sure, a sharp upward turn in rates would hurt just about everything, including the stock market, but the sectors that will get hurt the most are real estate and bonds.

Let's see if we can find out which one they're talking about. I wouldn't exactly describe the current real estate market as an area of excessive risk-taking. Most people still won't touch real estate with a ten-foot pole, and though real estate has heated up a bit, I wouldn't call the recent moves in the market excessive. Bonds, however, are in a bubble – and the yields of risky junk bonds have been pushed down a great deal by investors piling into them in search for higher yield, regardless of the underlying risk. Now this is just my interpretation, but it seems to me the Fed is saying that the bond bubble is a serious problem.

Here's our next mystery paragraph:

"A few also raised concerns about the potential effects of further asset purchases on the functioning of particular financial markets, although a couple of other participants noted that there had been little evidence to date of such effects. In light of this discussion, the staff was asked for additional analysis ahead of future meetings to support the Committee's ongoing assessment of the asset purchase program."

You see what I mean by murky wording. "Particular financial markets" and "little evidence to date of such effects" don't say much. What evidence and what effects, and in which financial market? Apparently, the Fed members find this issue worrisome enough to warrant further analysis; unfortunately, they're not being very forthcoming about it. What it does show, though, is that there are two conversations taking place about risk: one for the public and another one behind closed doors.

The Anger

As promised, here are a few quotes that might make your blood boil. If you read through the minutes quickly, they seem benign, but if you stop to think about them, they're infuriating. Here's the first:

"In 2014 and 2015, real GDP was projected to accelerate gradually, supported by an eventual lessening of fiscal policy restraint, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy."

Umm… wait; what "eventual lessening of fiscal policy restraint"? Essentially, the Fed is saying that as economic conditions improve, the American voter will stop complaining, and the government can finally get back to spending wheelbarrows of money. It's scary to think that these additional government spending plans are already reflected in the Fed's GDP projections, but apparently this isn't the only forward-looking policy prediction from the Fed:

"For example, a couple of participants noted evidence suggesting that a shift in the relationship between the unemployment rate and the level of job vacancies in recent years was unlikely to persist as the economy recovered and unemployment benefits returned to customary levels."

It seems that the Democrats have been very touchy about reducing those unemployment benefits, and the Fed seems to have a lot of faith in the government doing the right thing. But it's going to be tough for any party to curb those benefits when unemployment rates are even as low as 6%. Let's see what else the Fed's crystal ball forecasts for us:

"The staff continued to project that inflation would be subdued through 2015. That forecast is based on the expectation that crude oil prices will trend down slowly from their current levels, the boost to retail food prices from last summer's drought will be temporary and relatively small, longer-run inflation expectations will remain stable, and significant resource slack will persist over the forecast period."

OK, I buy the argument about the temporary effect from the summer drought, but the assumption of downward-trending oil prices seems a bit unrealistic. And if we're seeing growth in the economy as the Fed expects, then shouldn't the Fed forecast rising oil prices to match growing demand? Why even tinker with the numbers in this way? The Federal Reserve doesn't have a comparative advantage at projecting oil prices.

Here's the last bit worth noting:

"In addition, the Committee's highly accommodative policy was seen as helping keep inflation over the medium term closer to its longer-run goal of 2 percent than would otherwise have been the case."

If you read that quickly, you might think to yourself, "Well, that sounds good. I guess they managed to keep inflation closer to the 2% target." But think about what they're actually saying. Their accommodative policy is also known as "printing money." That's a process of pushing inflation up, not down. So, what they're saying is, "Man, we did a good job of pushing inflation up to 2%! Otherwise, it would have been lower." Ain't that just great?

It's imperative to protect yourself from the Fed's rampant money-printing, as sooner or later it can't help but cause serious inflation. One of the best ways to do that is internationalize.

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Pairadimes's picture

Where is the paragraph that says "Then they all remembered why they were really there, and great gales of laughter filled the room, after which each of the participants was shown to the open bar and given an underage child of their gender preference to pass the evening with."

Boris Alatovkrap's picture

This how all meeting is go, no? Pretend consternation for interest rate, bond purchase, GDP, inflation, then wink, wink, nod, nod, laughter is eruption and Central Bank is print more money. Boris is laugh so hard is ejection of vodka through nasal cavity.

AGuy's picture

 The price of Vodka goes up, yet Aguy's salary does not. AGuy has trouble purchasing Vodka. AGUY's non-discretionary costs (Food, Medical insurance, energy, everyday consumables) rise between 10% to 15% year, while after tax income declines caused by tax hikes (Fed, State & Local). AGUY not happy. AGUY now trapped in "Crap" sandwich as inflation and taxes put the squeeze on! AGUY Stuck in the middle between inflation and tax hikes. In the USA they call that Stagflation.

 In USA, you don't get stagflation, Stagflation gets You!



Silver Bug's picture

More nonsense at the FOMC. Just keep stacking.

kralizec's picture

Yes, not just PMs though, lead too, and lots of it.

ZippyBananaPants's picture

I float a few test farts too sometimes. Just to see how bad things will get if I really let loose!

francis_sawyer's picture

& thus... fellow ZHers... We now have a new definition, [complete with visual & full floral olfactory distinction], OF... 'ZippyBananaPants'...



Ladies & Gentlemen ~ on the first tee...

tickhound's picture

LMAO this whole thing is so fucking stupid.  ENTIRE HUMANITY should be insulted by the nonsense we subject ourselves to....

Right now, the ENITRE HUMAN RACE, is trying to "understand" "comprehend" FED "speak" and its "language" so we can properly "negotiate" and determine the mesaage in all its "sophistication".......

Collectively we conclude, "PONZI says although dry "at times" rains shall come"... And it evolves into "PONZI says RAINS WILL COME!!!!!!!"

And then when the rains don't come PONZI says, "I never said rains would come, bitches.  I said they'd come soon.  Relatively soon.  As a matter of fact I reject your entire premise.  But we're close, and we should do MOAR... you stupid serf."

And then we say, "YEA!!!" 


It's the whole problem with the Paul CIA Executive Order Drone questioning.


We need to ask... "Would it be considered possible, given that we are by executive order in a state of war, that in an effort to protect National Security, that an order could potentially be given, by a subordinate while the President was unavoidably detained, that could HOWEVER UNFORTUNATELY result in the death of an American citizen, on American soil, while in the act of what one of any patriot might consider a terrorist act?"

Then Rand would get his crystal "Yes, it's possible."

EVerything is a snake charm.  Lies we deem appropriate.  We call it being "professional."  It's a foundation.  We want science to tell us 2 + 2 = 4 but we need a snake charmer to woo us like some GD fortune teller.  We have all this technology and we rely on this BULLSHIT for GUIDANCE. 

chubbyjjfong's picture

I'm still very confused, and disillutioned.  The anger has gone however.  Now its just amusing but mostly overwhelmingly sad.  

W74's picture

Where can I get some of your drugs?  I'm still very much angry, but maybe that's just 'cause I'm mid-twenties and realize a hard-working, intelligent saver doesn't have much of a future in this country.

francis_sawyer's picture

drugs... [the kind you can grow yourself]... & PM's [MDB said today that they only cost $4.50 an hour to dig out of the ground ~ so get digging]...


The BITCOINERS ae going to tell you to pump it all into their pyramid scheme... Go ahead if you feel inclined, [but HONOR your back in the process]...

CunnyFunt's picture

Rock on re the marinara and the btc motherfuckers. This faith in temporal binaries is disturbing.

RockyRacoon's picture

Save your anger, nurture it, savor it.   It will come in handy in the near future.

gwar5's picture

Don't get angry, be smart and get ahead with what you already seem to know that most don't. Knowledge is the most valuable currency of all. Use it.


Being aware already puts you in the top 10% as a survivor, so give yourself a pat on the back. Example #1, you already know not to save in fiat currencies, so save in PMs. Example #2, you already know the USA may not be the best place for future opportunity, so do something about it and expand your skill set so you are prepared and have choices.

Adapt and add skills, perhaps a language, now that will give you an edge in another country that still welcomes economically productive people. Do research now and have a passport. Simultanously start networking via internet along those lines now as part of your research. An opportunity, or even an offer, will present itself to you before long.

Everybody else may be suffer from fear and loathing but you can easily move from survivor to  thriver with what you already know. 


natronic's picture

I don't think foreign investments will be safe when the $ fails.  

spinone's picture

Your only future is to work really hard to serve the elites, and get some scraps from the table.  If you can stomach it.

NoTTD's picture

As Elvis Costello once said, "I used to be disgusted, now I try to be amused."

francis_sawyer's picture

 "we at Casey Research had to look closely at the FOMC minutes"


sometimes, I'll admit... I can't resist to look at the toilet paper after I wipe my ass...

El Oregonian's picture

Is that some kind of new:

Rorschach test?


francis_sawyer's picture

Only after I eat Mexican food..

Boris Alatovkrap's picture

... or borsch!


(One time Boris is eat so much beet soup, urine is turn bloody red!)

I think I need to buy a gun's picture

if u pick up some all natural colon flow u won't even need the toilet paper, thereby more $avings

francis_sawyer's picture

Bullish! ~ Why aren't WMT & JCP stocking this?...

El Oregonian's picture

It only gets bitter from here...

The Shootist's picture

What I miss? Did we massively devalue overnight yet, for the children?

francis_sawyer's picture

So far... THE CHILDREN are getting a Dutch Oven... Stay tuned...

Cdad's picture

Perhaps it is because not enough time has passed yet, and transcripts of Ben Bernanke's two days of testimony on The Hill have not been widely distributed yet, but folks really should be saving their anger for the Humphrey Hawkins hearing that just occured...because if you read Ben's remarks there, he clearly confesses that, owing to the Fed's actions, there is NO LONGER A MARKET!

He said it.  I don't have to postulate on the matter, at all.  So go ahead and buy the S&P, dear "investor" so that you can plan on returns for your retirement.  LOL!

Things are far worse than this particular post about the Fed minutes would indicate.

The Shootist's picture

Congrats on getting a shoutout in BrotherJohnF's last video!

I need to watch all of the hearing when I have time and popcorn.

Cdad's picture

Well I'll be....thanks for the heads up, Shoot.  And thanks to BrotherJohnF, as well.

I defy any of the members of the criminal syndicate known as Wall Street, those who lurk around the edges of ZH, to go ahead and take the contrary case that Mr. Bernanke's Humphrey Hawkins testimony just completed was a "total and complete disaster."  It shouldn't be hard, after all, for one of the "best and brightest our nation has to offer" to explain how that testimony was a triumph for the citizens of America...that Bernanke did NOT just confess to turning this nation into a Banana Tree Republic...right?

Clear the baffles!


Dr. Engali's picture

Protect myself from the fed's rampant money printing checklist :

1) gold
2) silver
3) lead
4) brass
5) beans, band aids, booze ,and boobs.

Yep I'm good.

IridiumRebel's picture

...and a good woman that can do field dressings.....

dunce's picture

You might consider adding coal to your list for heating and cooking. It is energy dense, relatively cheap, and can be stored any where.

KTV Escort's picture

propane has an extremely long shelf life

NoTTD's picture

I plant to burn society.

dunce's picture

You might consider adding coal to your list for heating and cooking. It is energy dense, relatively cheap, and can be stored any where.

Prairie Dog's picture

I guess there's always something to be angry about, if you're that way inclined.

Yes, it would be a good thing to push inflation up to 2%.


Mike Cowan's picture

It is just criminal what Bernanke is doing. I keep waiting for Klautu & Gort to land and arrest him. 

EscapingProgress's picture

I have figured it all out. The FOMC is not on the same planet as I am.

gwar5's picture

Gold is already international and outside the banking system. Boating accidents in foreign countries are risky because of Somali pirates dressed as TSA agents, and such. 


Martenson and Jim Sinclair both seem to agree that the recent gold smashdown is a temporary buying opportunity. Sinclair has shorter time frame for rebound, before on to new highs of $3500 and ("beyond")  -- end of March to May.  And while Martenson is more focused on equities crashing soon, > May, his warnings dovetail with Sinclair's gold buying opportunity and tomes to hold fast/buy gold.

I was a little surprised to see Martenson's call for a major market drop, but only because it seems so soon and right on que. FED needs a market crash for CFPB to scare big 401K and IRA money into treasuries to be bagholders before rates rise in earnest. That's the exit strategy. Another huge drop in equities like happened in 2009 would do the trick.





lasvegaspersona's picture

GATA has commented that FOFOA's most recent piece "Checkmate' is an important read. 

He sees the paper market in a different way than most....based on his understanding of what Another and FOA said. GATA states it is not their view but an important opinion.

techstrategy's picture

Inflation is relative.  It depends upon where one sits in the economy.  Inflation is good for the owners of the assets who do not have to realize losses that would occur in a deflationary environment.  It sucks for the general public, who see lower real disposable incomes so the banks can avoid realizing losses.  This is the only reason for QE4EVAH...

Pandorable's picture

Tyler - I'm so glad you said that, because he sure pissed the hell out of me.  Evasive...deceitful, elitist and arrogant. None of his actions are defensible.

I was astonished and enraged by his "testimony". Why the hell isn't he in JAIL??????????????


Manipuflation's picture

WTF?  It is obvious that the FED will not lay off the CTRL-P button.  They can't.  The CB's are in a corner they will NEVER get out of.  Hell, if the miniscule 85B/M "sequester" is such a big deal then that just tells how precarious this house of cards really is.  How much is the fed pomo pumping per month again?

Pandorable's picture

You're right---they can't. Unforgivable that FORESIGHT was never a consideration.

Why not ask ROB-BEN HOOD to pull a quick $85bil out of his butt--like he does for his Central Banker BFFs EVERY month?

Manipuflation's picture

I sense vitriol in your post and I like it Pandorable.  I see the "Boyz" are saying 1200 digitz on Au as a target.  Ag always tracks spot Au long term.  I really want more Ag dimes just because, but those premiums do not track spot.  Saw this in Pt some years back and no one would sell.  The same will happen here.   

q99x2's picture

Who's responsible for letting them escape?