Showing posts with label quantitative easing. Show all posts
Showing posts with label quantitative easing. Show all posts

Thursday, September 21, 2017

Witch Doctors at the Fed Brewing Something Wicked?

Eventually, everything matters.

Whether it's a hurricane ravaging Houston, Miami, or Puerto Rico, Toys 'R Us going chapter 11, or JP Morgan Chase CEO Jamie Dimon bashing cryptocurrencies in general and Bitcoin in the specific, all actions have consequences. It's the butterfly flapping its wings in Africa resulting in the subtropical windstorm, pure physics, action, reaction, cause and effect.

Thus it is consequential that the Fed's announcement in June indicating that it would begin to sell off it's hefty bag of assets - confirmed just yesterday - beginning in October (a scant ten days from now) should have some noticeable effect.

Market reaction to the announcement three months ago was muted. It was more serious yesterday and took on a gloomy tone today as all of the major indices retreated from all-time highs, the hardest hit being the speculative NASDAQ index, though one could posit that the knee-jerk nature of the selling today was nothing more than casual.

Suppose it is more than that.

Wouldn't the biggest players in the investing universe be monitoring market movements closely, making incremental moves, buying insurance? Of course. None of them want to tip their hand, but, they are concerned that the Federal Reserve has lost control of the monetary side of the equation. After all, ZIRP (zero interest rate policy) didn't work, nor did quantitative easing (QE). With all of their bullets spent, the Fed has nonchalantly called the financial crisis over and done and signaled to the market that they are going to raise interest rates, sell off the assets they've been hoarding for some six, seven, or eight years and the economy of the United States - and the world - will suddenly and magically be wonderful again.

As Dana Carvey playing the "Church Lady" might say, "how convenient!"

The Fed is at a loss and has been for eight or nine years running (some may say longer), because they cannot control distant event, geological occurrences, sunrises, or the whims of people with money. They are what Ayn Rand and Rollo May might have called witch doctors whose power is derived from people's belief in their so-called powers.

When the Fed begins selling their cache of securities (mostly treasury bonds and mortgage-backed securities) expect some degree of howling from various quarters, notably those who have been calling the central bank's attempts to control global markets a scam, sham, or film-flam from the start.

Especially when it comes to the mortgage-backed securities (MBS) there will be great gnashing of teeth, especially deep inside the bowels of the Eccles Building, where it cannot be heard, as Fed governors (a number of them already jumping ship) bemoan their dissatisfaction over the task at hand.

They are about to become scorned, and with good reason. They've mismanaged other people's money (practically everybody's) to their own profit. Bernie Madoff would look like a saint compared to the crimes the people at the Fed have committed. Those crimes continue, and they will be manifest in the "great unwind."

As the case may be, all of these high priests and witch doctors of finance will claim they didn't see the carnage coming, but come it will. There's a place for people who use deceit and obfuscation to achieve their ends, and it's certainly not in heaven.

Keep a close eye on three things: the price of silver, the price of corn and wheat, and the performance of the major stock indices. If suspicions play out, all three (or two of three, with the only gainer being silver) will decline for months before there's true confirmation that, in the long scheme of things, the Fed officials, from Greenspan to Bernanke to Yellen, knew exactly what they were doing but did it anyway.

Today's position: Fetal.

At the Close, Thursday, September 21, 2017:
Dow: 22,359.23, -53.36 (-0.24%)
NASDAQ: 6,422.69, -33.35 (-0.52%)
S&P 500: 2,500.60, -7.64 (-0.30%)
NYSE Composite: 12,133.62, -13.88 (-0.11%)

Wednesday, February 15, 2017

Four Straight: All Major US Indices Close At Record Highs

Shades of the Weimar Republic, as all financial assets are becoming ridiculously overpriced.

As was the case in the Weimar, this may not end well. Inflation statistics from this morning's CPI reading showed January up 0.6% and the core CPI higher by some 0.3%. Meanwhile, capacity utilization fell 0.3 from December, to 75.3%.

Retail sales figures were also positive, showing a gain of 0.4%, after December's numbers were magically improved, revised from 0.6% to 1.0%. This as holiday sales gains from major retailers were modest or unreported, and large chains such as Sears and Macy's announced mass store closings coming throughout the year.

Global stock indices have also been ramping higher of late, an indication that the inflation, so often promised by endless rounds of quantitative easing (money printing) and an extended period (8 to 15 years) of low interest rates (some below zero) is finally occurring. What the globalists have been touting and predicting to happen can only lead to one logical conclusion: higher prices for consumers, a condition that will prove to impoverish the average citizenry of nearly every country in the world.

All of this may have something to do with the globalists running scared that their era of "free trade" and fiat money is about to meet its logical conclusion.

But it's all good for Wall Street, and that's what counts, to Wall Street.

At the Close, 2/15/17:
Dow: 20,618.98, +114.57 (0.56%)
NASDAQ: 5,821.62, +39.05 (0.68%)
S&P 500: 2,351.15, +13.57 (0.58%)
NYSE Composite: 11,510.34, +41.47 (0.36%)

Tuesday, December 10, 2013

Another Dismal Day in the Dumps for Stock Owners

Certainly, nobody is going to feel sorry for the Wall Street lemmings, vultures and whales for another losing day on stocks. After all, the major averages are up more than 25% on the year and a good number of individual issues are up much more than that, many having doubled in price over the past 48 weeks.

So, excuse us if we cry crocodile tears for well-heeled investors and speculators.

There is, however, a little bit of a problem in the markets, and it is completely and everlastingly tied to the Federal reserve and their Zero Interest Rate Policy (ZIRP) and continuing quantitative easing (QE), about which there is much debate, constrnation and confusion.

The final meeting of the year for the FOMC is slated for next Tuesday and Wednesday, and, while nobody in their right mind expects this august body to announce any rate policy changes, there is the small matter of decreasing the amount of securities the Fed is buying every month (QE) from the current $85 billion to something less than that, otherwise known as "tapering."

CNBCs Steve Liesman, who has a pipeline directly to and from the Fed, announced today that tapering would be announced at the December meeting. That news, and the final acceptance and future implementation of the Volker Rule, sent stocks backpedaling from the outset. The Volker Rule, in essence, disallows banks from engaging in speculative trading with depositors' money, something the various agencies feel was responsible for at least a part of the financial crisis of the past five years.

The rule puts severe restrictions on what banks can and can't do in terms of proprietary trading (i.e., speculating), but it is dense, long, deep, and riddled with potential loopholes for crafty lawyers and bankers to slither all kinds of nefarious doings through. The Volker Rule document - three years and 585 pages in the making - is, in reality, nothing more than a full-employment bill for litigation attorneys. Bully for them.

QE, and, more specifically, the tapering of QE, is another animal altogether. The Fed has been jawboning about the possibility of scaling back their bond purchases - $45 billion in treasuries and $40 billion in MBS - since May, with varying degrees of success. Wall Street banks, being the main beneficiaries of the program, would like the policy to extend to infinity and beyond, though they know in their dark heart of hearts that it must come to some kind of conclusion. The US economy cannot be force-fed money by the central bank forever.

Besides the program being excessively beneficial to banks and somewhat harmful to small businesses, consumers and emerging market nations, there is another problem that the Fed may never have considered. Due to their monopolizing of the MBS and treasury markets, the available bond issuance is dwindling, so much so, that the Fed may have no choice but to wind down such programs.

The other side of the equation is such that the Fed has so far crowded out potential bidders that there may not be many who actually want to participate. Thus, many in the bond world see even a slight decrease of buying by the Fed as a potential for higher interest rates, including interest on government debt itself, which is already a large portion of the Federal budget but could grow into a behemoth should the federal government have to begin paying back interest at higher and higher rates.

These are the unforeseen, though somewhat predictable, ramifications of the Fed's actions, actions that forestalled an implosion of the financial system and the insolvency of many of the world's largest financial institutions, dating back to the halcyon days of 2008 and $800 billion in TARP money and then-Fed Chairman Hank Paulson holding a gun to the economy's head.

So, Liesman may be bluffing at the behest of the Fed, or he could have just issued the warning shot to the markets that the plundering of assets with free money is about to come to an end.

The signs that the policy has run its course are profligate: record art and collectible car auctions, record high-end real estate prices, record stock prices.

Enough is enough. The party is about to come to a crashing, cataclysmic conclusion, and as cataclysms usually are, this one is not likely to be pretty.

Technically speaking, the advance-decline line deteriorated again today, the gap between new highs and new lows continues to show signs of shrinking and potentially flipping, and outside of Friday's massive vapor-rise, stocks have fallen every day since Thanksgiving.

The good news (for some) is that commodity prices took a lift today, with silver and gold leading the way.

DOW 15,973.13, -52.40 (-0.33%)
NASDAQ 4,060.49, -8.26 (-0.20%)
S&P 1,802.62, -5.75, (-0.32%)
10-Yr Note 99.43, +0.37 (+0.37%), Yield: 2.80%
NASDAQ Volume 1.71 Bil
NYSE Volume 3.07 Bil
Combined NYSE & NASDAQ Advance - Decline: 2115-3553
Combined NYSE & NASDAQ New highs - New lows: 206-113
WTI crude oil: 98.51, +1.17
Gold: 1,261.10, +26.90
Silver: 20.32, +0.614
Corn: 436.00, -2.00

Thursday, February 17, 2011

Stocks Up; Silver at 30-Year High

All attempts to slander, deride or talk down the precious metals as the ultimate store of value have failed. Trillions of Benji Bucks, delivered to market participants by the Federal Reserve and sparking an equity and commodity boom the likes of which the world has never seen has finally defeated the forces holding down the value of gold and silver.

In what can only be characterized as a massive short squeeze, silver spiked to fresh 30-year highs, while gold surge to a one-month high. There is little to hold them back now save the massive short silver positions held by JP Morgan Chase, and they are being buried under frenzied buying.

Uprisings in Middle Eastern countries from Bahrain to Syria to Lybia to Algeria to Saudi Arabia, in the aftermath of the Egyptian triumph over tyranny, have been set off by upward global food price price pressure, the lack of stable employment and corruption in government. If those themes sound familiar to people in the more "developed" world such as the USA and Europe, it is because we are beset on all sides by corruption and inflation, a deadly combination for anyone who seeks to hold positions of political power.

Thus, the Federal Reserve has sparked rebellions overseas and maybe tipped the flobal community past the point of no return. Only the dole in England, food stamps in America and deeply-ingrained socialism in most of the EU has kept the people of these countries from "going Egyptian" on their political masters.

The Westernized nations certainly have a great deal to gripe about, though the impact of the Fed's policies of zero interest rate and quantitative easing are being felt first in the rest of the world. They will no doubt be visiting the shores of Europe and the United States at some as yet determined date. Runaway inflation, high unemployment, dissatisfaction with government policies and widespread fraud should result in tumult of the highest order just in time for the presidential elections in 2012, should the nation still be intact by then.

But, I digress. The most important signpost of the day was the spike in silver, without a doubt. It was, in warrior terminology, a shot across the bows of the ships of states printing fiat money, backed, laughably, by "good faith and cradit" of the issuer. In the case of the United States, unbeknownst to the rulers-at-large, all faith has been shattered and our national credit card has been tapped out. We loan mostly to ourselves, from ourselves, by ourselves, in a Ponzi scheme so deliciously evil that it would make Bernie Madoff look like a boy scout.

Dow 12,318.14, +29.97 (0.24%)
NASDAQ 2,831.58, +6.02 (0.21%)
S&P 500 1,340.43, +4.11 (0.31%)
NYSE Composite 8,497.41, +43.65 (0.52%)

Advancing issues beat decliners, 4118-2402. NASDAQ recorded 212 new highs and 22 new lows. On the NYSE, new highs topped new lows, 361-9, a number so ridiculously out of balance that only Ben Bernanke could love it. There is no downside risk to owning stocks and until there is, one should load up with tight stops on the underside. Volume was back into the abyss of the past two years.

NASDAQ Volume 1,952,032,375
NYSE Volume 4,178,143,000

Oil was up another $1.37, to $86.36 on conflicting reports that Iran was about to send warships through the Suez Canal. Israel is worried and called the act "provocative," while countries all around it are undergoing spasms of freedom and expressions of liberty. The smart money has already left Zion. A couple of Palestinaians were shot and killed by Israeli soldiers on the border of the Gaza strip.

Gold gained $10.00, to $1,385.10, and silver was up more than 2% at the close in New York, higher by 94 cents, to $31.57. Silver, said to be rarer than gold by some accounts, has jumped $5 dollars US in just over a month. Today's final push to new highs marks the beginning of a second phase in the bull rally that has slowly limped behind gold, but has recently outstripped nearly every other asset class, gaining 87% in 2010 alone.

Estimates for how high silver can go and in what time frame range from the reasoned to the impossible, though in today's upside-down economic world, the impossible - such as the S&P 500 doubling in just the past two years - is now possible. A reasonable guess is that silver will reach $50 by the end of the year, which would be "only" a 67% gain in an asset that has no counterparty risk if one holds physical metal and is deeply undervalued by almost every metric.

Now that buying stocks is a risk-less play, expect some surprises in the next downturn, such as it coming out of nowhere, for no particular reason and to be deep and quick. The sheep will surely get sheared once again as gold bugs and silver sleuths sit back and gloat.

Yes, and real estate in selected markets is cheap, but will be cheaper later this year, even cheaper in 2012 and practically fire-sale prices in 2013. Save your silver. In three years time, you'll be able to buy a reasonable three-bedroom home in a decent community for about 200 ounces of silver. I would not kid you about that. Of course, you may not be able to afford the property taxes, especially if the house is in New York, New Jersey, Massachusetts or California.

And, BTW, the banks are dead. They just won't admit it.

Wednesday, September 15, 2010

QE Working Marvelously for Wall Street

Hello, broken record department, how can I help you?

More quantitative easing, please.

Not a problem. Thank you.

Dow 10,572.73, +46.24 (0.44%)
NASDAQ 2,301.32, +11.55 (0.50%)
S&P 500 1,125.07, +3.97 (0.35%)
NYSE Composite 7,179.79, +17.71 (0.25%)

Advancing issues held sway over decliners, 3132-2554. New highs towered over new lows, 309-41. This should be regarded as entirely cosmetic. Even bad companies are good. Volume was higher than it's been in some time.

NASDAQ Volume 2,085,158,125
NYSE Volume 3,617,492,750

News flash: the world is afloat in oil due to slack demand. The current futures contracts sold off 78 cents today, to $76.02. Gold is beginning to feel pricey, down $3.00 today, to $1,266.70. Silver gained 14 cents, to $20.54, a bargain by comparison, though closing in on a 2 1/2 year high.

I played golf and didn't bother to keep score. It was fabulous. Playing alongside one of my very best friends surely didn't diminish the pleasures of the afternoon. Played 18 holes. Even parred one.

It's all a matter of perspective, expectation and liquidity, after all. Right now, liquidity seems to be the position most favored. Buyers markets are springing forth everywhere. When will the money come without strings?

Monday, July 27, 2009

Stocks Flat As Consolidation Appears Likely

US stocks spent the majority of the session in negative territory, only to catch a bid late in the day and record modest gains. As there were few major companies reporting earnings, traders searched for signs of a recovering economy in new home sales data, which surged 11% from the previous month.

At this point, such news from the housing sector is extremely positive, though foreclosures continue to escalate in hardest-hit areas of the county, such as Michigan, California and the Southwest.

Dow 9,108.51, +15.27 (0.17%)
NASDAQ 1,967.89, +1.93 (0.10%)
S&P 500 982.18, +2.92 (0.30%)
NYSE Composite 6,364.66, +27.20 (0.43%)

Internals were in line with the headline numbers, though the trading range was extremely narrow (80 points on the Dow). Not to put too fine a point on it, but nothing much was moving in any direction following a week of relatively strong gains. Advancing issues outnumbered decliners, 3886-2522 and new highs continued their recent reign over new lows, 213-86. Volume was moderate, as traders change positions in what may be another consolidation phase.

NYSE Volume 1,045,247,000
NASDAQ Volume 2,159,129,000

The issue for markets is once again technical, as indices have surged again to positions indicating a recovering economy and possible renewed growth, though signs of such are remain few and far between. With many of the major companies already having reported, the market is likely to experience a bout of profit-taking near term, though many indicators are pointing towards a continuation of the rally.

It would be nice to be able to sound the "all clear" horn, but macro-economic forces, especially the solvency and liquidity issues in the banking fortress, are still in a state of virtual shutdown. Further out, the only geopolitical zone which shows any potential for long-term growth is the Pacific Rim, India and China. The US and Europe remain basket cases with far too much overhang in government deficits, an indirect result of last fall's near catastrophe. Money to lend remains on short leashes, with only the best credit-worthy of borrowers able to dip into the pool. Small business in the private sector offers great potential, but is being stifled without financing, causing a serious negative feedback loop into the general economy.

The US is being kept afloat by the patchwork done by the Fed, Treasury and the continued funding of the huge swath of entitlement programs. Payments to beneficiaries of Social Security, state and local pensions, disability, unemployment insurance and welfare are providing a floor upon which the broader economy will try to grow. It's a very bottom-up approach, and entirely built upon the generosity of Congress and borrowed funds from a variety of sources, a good deal of it in the quantitative easing being undertaken at the Fed.

While it is entirely possible that the Obama stimulus plan will provide enough of a boost to avoid a rerun of 2008, there are serious issues such as inflation, ballooning state government deficits and the unusually high rate of unemployment. Until there are actual jobs being created, it's more or less a slowly plodding domestically-based cash economy without real gains in either productivity and job creation. As such, it's difficult to recommend any long-term stock buying. The market remains a casino for quick returns or losses.

Commodity trading was also sluggish. September light crude rose 33 cents, to $68.38. Gold gained 40 cents, to $956.30, and silver was up 12 cents, to $13.99. Oil remains overpriced in consideration of demand, flat to declining even in the full bloom of summer.

More companies report on Tuesday. The ones which will be watched the closest are Deutsche Bank (DB), Hitachi (HIT), Universal Health Services (UHS), United States Steel (X) and Valero Energy (VLO).