It is undeniable that America is thoroughly addicted to fiat stimulus. Every aspect of our economy, from stocks, to bonds, to banks, and by indirect extension main street, is now utterly dependent on the continued 24/7 currency creation bonanza. The stock market no longer rallies to the tune of increased retail sales, growing export markets or improved employment expectations. In fact, “good” economic news today is met with panic and market sell-offs! Why? Because investors and banks still playing equities understand full well that any sign of fiscal improvement might mean the end of the private Federal Reserve’s QE pajama party. They know that without the Fed’s opiate-laced lifeline, the economy dies a fast and painful death. All mainstream economic news currently revolves around the Fed, as pundits clamor to divine whether the latest signals mean the free money will flow, trickle, or dry up. At the edge of the Federal Reserve’s 100th anniversary, it is vital that we see the current developments for what they really are – history changing, in a fashion so violent they are apt to scar America forever.
For now, markets are holding on to gains (in bonds, stocks, and gold) as we prepare for Ben to explain just how bad things are... and answer the tough questions about the growth slowdown in 2016... Of Course, that doesn't matter:
DOW JONES INDUSTRIAL AVERAGE RISES TO ALL-TIME HIGH
*S&P 500 RISES TO RECORD HIGH AFTER FED STATEMENT
Seems like moar of the same is here to stay in the Yellen Fed but now we know that QE is not helping the real economy - how will they 'communicate' its effectiveness? We suppose that, for now, Stein's warning of 'froth' is just for the academics...
The yield on the benchmark 10-year U.S. Treasury bond has risen by more than 84 percent from May to early September, one of the most violent and rapid increases on record. This spike has caused severe convulsions in the bond market, leading many investors to wonder how long the torment can last. But as Guggenheim's Scott Minerd notes, if history is our guide, the answer is that it may be over soon. Investors would be wise to remember that “soon” is a period of time, not a matter of degree. Minerd makes this point to be clear that while long-term interest rates still have room to increase in this historic bear market - maybe even significantly - now may be the most opportune time to purchase longer duration fixed-income securities in the past two years.
With Syria now quickly fading from the headlines and Wall Street believing that Yellen is a "shoe in" for the Fed, what headwinds still remain for the markets ahead...
A decisive tipping point in the evolution of American capitalism and democracy - the triumph of crony capitalism - took place on October 3, 2008. That was the day of the forced march approval on Capitol Hill of the $700 billion TARP (Troubled Asset Relief Program) bill to bail out Wall Street. This spasm of financial market intervention, including multi-trillion-dollar support lines provided to the big banks and financial companies by the Federal Reserve, was but the latest brick in the foundation of a fundamentally anti-capitalist régime known as “Too Big to Fail” (TBTF). It had been under construction for many decades, but now there was no turning back. The Wall Street bailouts of 2008 shattered what little remained of the old-time fiscal rules. There was no longer any pretense that the free market should determine winners and losers and that tapping the public treasury requires proof of compelling societal benefit.
Amid the 100 year anniversary of the creation of the Federal Reserve, it is absolutely imperative that the American people understand that the Fed is at the very heart of our economic problems. It is a system of money that was created by the bankers and that operates for the benefit of the bankers. The American people like to think that we have a "democratic system", but there is nothing "democratic" about the Federal Reserve. Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy. There is a reason why financial markets respond with a yawn when Barack Obama says something about the economy, but they swing wildly whenever Federal Reserve Chairman Ben Bernanke opens his mouth. The Federal Reserve has far more power over the U.S. economy than anyone else does by a huge margin. The Fed is the biggest Ponzi scheme in the history of the world, and if the American people truly understood how it really works, they would be screaming for it to be abolished immediately. The following are 25 fast facts about the Federal Reserve that everyone should know...
This weekend has launched a new level of the bull-ghey, as we have our second example this month of the market rallying not on something that happened, but on something that didn't. Thus, I humbly offer more good reasons that the bulls could conjure up to propel us to yet new record highs, because God knows, if there's one industrial powerhouse that we need to safely usher into a successful IPO, it's Twitter. So here we go:
- Summers Quit Fed Quest After Democrats Spurned Obama Favorite (BBG)
- Geithner Still Not Interested in Fed Chair Slot (WSJ)
- Gross’s Trade Sours as Bonds Lose Faith in Fed Guidance (BBG)
- Bob Diamond calls for bank rules shake-up (FT)
- Russia says may be time to force Assad's foes to talk peace (Reuters)
- Iran Dials Up Syria Presence (WSJ)
- Kerry Seeks to Sell Syria Deal (WSJ)
- Shutdown of Japan’s Last Nuclear Reactor Raises Power Concerns (BBG)
- Emerging Stocks Rise to 3-Month High as Bonds Gain on Fed (BBG)
- Bernanke’s Maradona swerve hits bonds (FT)
"A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money ."
- Ben Bernanke, Deflation: Making Sure "It" Doesn't Happen Here, November 21, 2002
For the right answer, we look to the past....
Stanley Druckenmiller's World View: "Catastrophic" Entitlement Spending, "Bizarre" & "Illusory" Asset Markets, & Beware The TaperSubmitted by Tyler Durden on 09/11/2013 20:50 -0500
During an extended interview with Bloomberg TV, billionaire investor Stanley Druckenmiller provided a seemingly fact-based (and non-status-quo sustaining, commission-taking, media-whoring) perspective on a very wide variety of topics. The brief clips below touch the surface, with the detailed annotated transcript below providing details, as Druckenmiller opines on the looming catastrophe in entitlement spending "when you hear about the National debt being $16tn; if you actually took what we promised to seniors and future taxes, present value to both of them, that number is $200tn," why the Fed exit will be a big deal for markets, "it is my belief that QE has subsidized all asset prices and when you remove that, the market will go down," and his changing views on Obama "I was drinking the hope and change Kool-aid... in hindsight, he probably needed more experience for this job." Looking back to the financial crisis, he warns, "...a necessary condition to have a financial crisis, in my opinion, is too loose monetary policy that encourages people to take undue risk and go on the risk curve and do silly things. We should have shut this down in 1998, 1999. The NASDAQ bubble, we should have raised rates, we didn’t. Then we got the implosion."
In the first three parts (Part 1, Part 2, Part 3) of this disheartening look back at a century of central banking, income taxing, military warring, energy depleting and political corrupting, we made a case for why we are in the midst of a financial, commercial, political, social and cultural collapse. In this final installment we’ll give our best estimate as to what happens next. There are so many variables involved that it is impossible to predict the exact path to our world’s end. Many people don’t want to hear about the intractable issues or the true reasons for our predicament. They want easy button solutions. They want someone or something to fix their problems. They pray for a technological miracle to save them from decades of irrational myopic decisions. As the domino-like collapse worsens, the feeble minded populace becomes more susceptible to the false promises of tyrants and psychopaths. Anyone who denies we are in the midst of an ongoing Crisis that will lead to a collapse of the system as we know it is either a card carrying member of the corrupt establishment, dependent upon the oligarchs for their living, or just one of the willfully ignorant ostriches who choose to put their heads in the sand and hum the Star Spangled Banner as they choose obliviousness to awareness. Thinking is hard. Feeling and believing a storyline is easy.
These days, you could put ‘safety and security’ in front of just about anything and get people to readily comply. Well, OK. After all, who is against ‘safety and security’? Only criminal terrorists, apparently. This is now the easiest way for governments to exact their agendas... whether it’s invading new countries, monitoring all Internet activity worldwide, or bailing out the big banks at taxpayer expense. Apparently the citizenry has become so scared that we collectively lay down and let governments walk all over us. At this point, the Founding Fathers’ list of grievances nearly pales in comparison to the indignities and injustices to liberty that people suffer today under their government. We’ve been talking about this trend for four years now. This is no longer theory. It’s real. It’s happening. And it’s coming soon to a bankrupt, insolvent nation near you. Have you hit your breaking point yet?
Emerging markets’ currencies are crashing, and their central banks are busy tightening policy, trying to stabilize their countries’ financial markets. Who is to blame for this state of affairs? The cause of this state of affairs, in one word, is austerity. Weak demand in Europe is the real reason why emerging markets’ current accounts deteriorated (and, with the exception of China, swung into deficit). Thus, if anything, emerging-market leaders should have complained about European austerity, not about US quantitative easing. Fed Chairman Ben Bernanke’s talk of “tapering” quantitative easing might have triggered the current bout of instability; but emerging markets’ underlying vulnerability was made in Europe.