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3 Things: The Fed Is Screwed
Submitted by Lance Roberts via STA Wealth Management,
The LMCI Index Says The Fed Is Late Again
In May of 2014, the Federal Reserve began discussing a newly designed labor market index to help support their claim that employment conditions in the U.S were improving. This was an important facility for the Fed which needed support to raise interest rates. My good friend Doug Short has a complete discussion on the LMCI, which is worth reading for context. As he defines:
"The Labor Market Conditions Index (LMCI) is a relatively recent indicator developed by Federal Reserve economists to assess changes in the labor market conditions. It is a dynamic factor model of labor market indicators, essentially a diffusion index subject to extensive revisions based on nineteen underlying indicators in nine broad categories.
The indicator, designed to illustrate expansion and contraction of labor market conditions, was initially announced in May 2014, but the data series was constructed back to August 1976."
Unfortunately for the Federal Reserve, the index has not supported the Fed's claims that employment is growing at a rate strong enough to withstand a tightening of monetary policy. In fact, as shown in the chart below, the LMCI index (smoothed with a 12-month average) has been a leading indicator of future weakness in employment. The recent downturn in the LMCI suggests that employment gains may more muted in the months ahead.
Therein lies the problem for the Fed. If the LMCI is indeed forecasting weaker employment, then the Fed's ability to raise interest rates is negated. However, as shown in the chart below, the Fed has ALWAYS been late to the game when hiking interest rates. Each time the Fed began hiking interest rates was at the point the LMCI had effectively peaked.
The Fed is once again very late to the game in hiking rates. The problem is that with the economy growing at less than 2% annualized, there is very little wiggle room for a policy mistake.
Retail Sales Decline
While the weakness in the LMCI is suggesting more disappointing employment growth ahead, retail sales are suggesting that the economy is likely much weaker than headlines suggest.
Given all the massaging of data through seasonal adjustments, the chart below using the NON-seasonally adjusted data smoothed with a simple 12-month average. This gives a much more realistic look at what is actually happening with retail sales in the economy that makes up roughly 40% of total personal consumption expenditures. I have also provided the SA adjusted data to show the correlation between the two series.
As shown, when retail sales have fallen below 4% growth it has historically been a leading indication of the onset of a recession. While there has been no official recession call as of yet by the NBER, it is important to remember that much of the economic data is subject to rather large annual revisions. It will not be surprising to see economic growth revised lower next year.
The chart below shows the annual rate of change in "control purchases" which is more closely related to the actual activity of average consumers. I have overlaid the analysis with a simplistic economic cycle. Again, as shown above, control purchases are also suggesting that the economic environment is, in fact, very weak.
The weakness in retail sales will feed into the personal consumption component of GDP which comprises almost 70% of the economic equation. This will be a problem for the Fed.
What Inflation? PPI Declines Again
Of course, let me once more remind you why the Fed raises interest rates - to SLOW economic growth and QUELL inflationary pressures in a potentially OVERHEATING economic environment.
With Q3 economic growth rates closer to 1% than 2%, there is little danger of an overheating economy currently. Furthermore, as shown in the composite inflation index below (average of both PPI and CPI), there is absolutely no worry about spiking inflationary pressures.
Of course, this is why the Social Security Administration just announced there will be NO INCREASE to social security payments this year. Unfortunately, for those recipients there will be no offset for sharply rising healthcare costs, property taxes or insurance payments.
For investors, the deflationary decline will erode corporate profitability and ultimately stock prices. As shown in the chart below, sharp declines in inflation have generally been associated with negative annual rates of growth in the financial markets.
Weakness in the financial markets ultimately weighs on consumer confidence which is why the Federal Reserve has been focused on supporting higher asset prices. A collapse in stock prices will quickly turn in to a negative feedback loop for the economy.
The Federal Reserve is quickly becoming trapped by its own "data-dependent" analysis. Despite ongoing commentary of improving labor markets and economic growth, their own indicators are suggesting something very different.
As I have stated previously, while the Federal Reserve may hike interest rates simply to "save face," there is indeed little real support for them doing so. Tightening monetary policy further will simply accelerate the time frame to the onset of the next recession. Of course, the Fed knows this which is why they recently floated the idea of "negative interest rates" out into the markets. In other words, they already likely realize they are screwed.
Just something to think about.
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The rich have got richer.. poor poorer.. MIddle class is struggling and working pay check to pay check ... you cannot get a credit card with a limit that is not a joke.. cannot qualify for a home unless you are making buku bucks in a large city... nice work O'bumma Aswath Damodaran: The Fed, Interest Rates And Stock Prices: Fighting The Fear Factor
CORRECTION, We're screwed.
The Fed's cronies have exponentially increased their wealth by swapping thin air fiat for real things of value and are
poised to bug out with their ill gotten gains. Yeah, the Fed. is sooooo screwed, bet they're really sweating it.
The biggest worry they have is transitioning between hosts without having to pull out the proboscis for a protracted
period of time.
their "system" (the fed's) is working perfectly as it has for 100 years...for them.
The human race is becoming a disgrace!https://m.youtube.com/watch?v=u1T6l70XlqU
the word you are looking for is "beaucoup"
the word you are looking for is "beaucoup"
can we break up the criminal banks yet?
we have to wait until they break us is the system.
Wouldn't a crash drive everyone into bonds, where the FED can unload this crap onto them? Then there is MyRA, where the poor will be stuck buying them.
yes, ironically zirp causes the usa gubbermint to pay higher rates of interest. this entire stock market rally is financed by uncle sam for the benefit of the maggots.
I'd counter most people don't buy stocks now. Maybe the big boys, the retirement funds. Who wants to buy near negative interest rates anyway?
*Markets* up big. Nothing else matters.
stocks soar because of delayed rate hike due to weak economic data.
The addict gets super high because of delayed rehab due to bad health.
There seems to be only one thing to do wrt/ all this: In the words of Tim Robbins' character Andy Dufresne in "The Shawshank Redemption",
ypu can either "get busy living or get busy dying." Do your homework; wait for the smash; pick thru the bargains (there are boud to be some).
As any good gastroenterologist will tell you, this too shall pass.
pretty obvious that it is the NY FED providing the ammo for primary dealers (and hedgies who get the collateral via rehypothecation) via reverse repos to manipulate markets higher on low volume through futures markets by placing bets with collateral they don't own.
today $100 billion in reverse repos and 39 bidders taking the collateral (and being paid for it!). yesterday $90 billion in reverse repos and 41 bids. so there are 2 fewer takers today but $10 billion more in notional - so maybe some $12 billion in extra collateral today to be rehypothecated and placed as collateral on futures market bets - collateral they don't own.....
cut reverse repos (and securities lending) and you end this charade. primary dealers simply don't own enough unencumbered treasury collateral to rehypothecate to players/manipulators.
at this point, the only function of the NY FED seems to be to support the massive interest rate swap positions of their friends.
This analysis assumes the Fed is trying to improve the economy, instead of making themselves rich via insider trading and setting up cushy jobs when they rotate back into 'the civilian sector'.
Have you noticed how history is either filled with very stupid people or their goals are not as assumed.
Either way, analysis doesn't work :
https://thinkpatriot.wordpress.com/2015/10/11/lebowski-enlightenment-6/
https://thinkpatriot.wordpress.com/2015/10/11/the-wrong-question-as-usual/
Again, it appears as though the bottom is in. SPX again challenging 2020.
You cannot fight the Fed. Why even try? Its like standing on the tracks in front of
an out-of-control freight train. Or any freight train for that matter.
Unless there is the mother of all reverals, it looks like once again, October turns the bear.
S&P close above 2025 should be enough to run the last of the shorts out.
I don't even have a bank account anymore so what do I care? I have been on the gold standard with Utah's sound money pilot program: UPMA. Spending and saving in gold. Other than not knowing about it I'm not sure why anyone that likes gold wouldn't do it.
How does it work in practice?
-----
For example, if you want to buy a product that costs $1800, and spot gold happens to be at $1800 per ounce (and the 1oz buffalo coins you own currently sell for $1850), what happens?
Remember, your gold buffalo coin says $50 on it... presumably that is the "legal tender value".
So... I'm just curious. How does this work in practice for you, stores and others who buy and sell goods and goodies?
Also, does sales tax enter the equation? Or is that typically ignored since nobody is exchanging fictional fiat-debt notes?
Huh.....well good enough for +30 S&P today anyway.
"Of course, let me once more remind you why the Fed raises interest rates - to SLOW economic growth and QUELL inflationary pressures in a potentially OVERHEATING economic environment."
Well, that's a fine theory. But the evidence simply doesn't support it in this case. A rise in nterest rates in this case have been unabiguously signaled as firstly signaling the success of QE. And secondly they have been signaled as the reloading of the policy gun.
The fact that the economy actually (and visibly if you discount highly massaged and wishful official statistics) went back into recession AS SOON AS QE ENDED, clearly indicates that there is no recovery at all, but only a great deal of paper printing paper bridges over water that would dissolve in the first rainstorm, and are visibly dissolving now.
FED policy changes in a low growth world.
The eye is on enough growth to keep the sovereign debt / deficit within limits.
NOTE:- Your debt don't count in this policy play so best to avoid it if you can.
OMG this is so cray-cray; so like my broker says we're still kool, right? i don't wanna have to think about this stuff, LOLOLOLOL; #facebooknation #whatsonteeeeeveeeee
The un-fed isn't screwed, but all the serfs sure as hell are!
Who cares... Fed will come to the rescue for these Wall Street again in 2016-2017.
Market will crash and go right back up. It will make inequality much worse. Fed will use NIRP and QE.
The Fed can create all the money it wants at a keystroke, thus logic suggests the game is not simply about skimming cash from people's pockets.
My view is that the system of extraction is all about control. The people in power know that free thinkers with money in their pockets are hard to control. No matter how rich the society, there will always be a need for control. There are no libertarians in the halls of power.
Money, debt, taxes and the military/police are the levers of power.
Unfortunately for the Fed, the erstwhile middle class does not dance to the tune of the stock market. You cannot use money as an instrument of control if no one but a few at the top have any money. The system, unlike greed, has real limits.
Get over it - just get fucking "rich":
https://www.youtube.com/watch?v=RBHZFYpQ6nc
...and say anything in the fucking world you want to, for any reason you want to, for any price you
https://www.youtube.com/watch?v=R6LgXH0aJGk
"See's Chocolates" Really? That fucking shit??
Humourless? Yes. Tasteless as well. If you eat his shit, listen to his shit, then you have no intelligence, no taste, no fucking idea of anything beyond a strictly Walmart mentality of life.
Good luck USA. This asshole system is crap. Utter crap. Hope you've got good medical insurance because you are really going to need it.
The Fed already has its exit strategy. "Blame someone else" Problem solved
Fed is Screwd?
Everyone gets screwed when a homosexual with syphilis eaten brain rules the nation