Now that the Fed has restored its own venerable credibility, the markets seem to think, "well, yeah, the fed is credible, but still wrong." Fed Chairwoman, Janet Yellen, will go down in history as the worst chairperson in the 102-year history of the Federal Reserve, followed closely by her predecessor, Ben Bernanke.
Hiking the federal funds rate even a measly 1/4%, as they did on Wednesday, seems to be anathema to all kinds of markets, except maybe the dollar index, which, unlike just about everything else, rallied today.
Stocks erased all of yesterday's gains and then some, sending the Dow Jones Industrials and S&P 500 into the red for the year. For investors of all stripes (and most importantly, hedge fund managers, who have gotten murdered this year), what's worse is that the year is almost over and there doesn't seem to be a catalyst available to overcome what damage the Fed has done with its unmistakable policy error.
Anybody with brain cells saw this coming well in advance. The global economy is virtually on its knees and the Fed thought it was time for a hike in interest rates. The hike amounted to the political equivalent of a punt. There was nowhere else to go, so they went through the only door open. Bad mistake, especially since that door had been open since 2009.
What were they thinking? Maybe the question should be "what were they not thinking?" because they ignored the obvious signs of slowing, not only in emerging markets, but in commodities, high yield bonds, corporate profits, sales, housing, and a plethora of other indicators that were signaling recession ahead rather than recovery accomplished.
The Federal Reserve is comprised of some of the worst thinkers on the planet, whose sole interest is in keeping their credibility intact, and they are quickly losing control over that. They've managed, in the short span of seven years - thanks to their dual policies of zero interest rate policy (ZIRP) and quantitative easing (QE) to completely dismantle the fabric of capitalism, enriching only the upper, upper crust of wealthy individuals while dashing the hopes and savings of millions of would-be retirees.
With any luck, the Fed's failed policies will lead to outright rejection of the currency, not just around the world, but right here in the United States as well. These are control freaks, and they've lost control, implying simply that worse decisions are already in the making.
In case anybody's paying attention, the Federal Reserve is busy wrecking what's left of the global economy by bringing the US economy into line with the rest of the world, which, if one would like to take a look at Argentina, Brazil, and Mexico, is already suffering deeply.
Global depression and a debt jubilee are on the plate for 2016. You can have it served directly or order it to go. Zombie banks, which should have gone out of business in 2008, don't deserve to be repaid again, as they've already stolen so much taxpayer money that they've bankrupted the US government.
It's a good thing there's only a few weeks left in the year, because the losses for 2015 will stop suddenly on December 31.
Sadly, those losses will resume promptly, when markets reopen on January 4, 2016.
In advance, Happy New Year (if we make it).
Thursday, December 17, 2015
Wednesday, December 16, 2015
Fed's FOMC Announces 0.25% Rate Hike, Stocks Soar On The News, Banks Raise Prime Rate
As expected, the FOMC (Federal Open Markets Committee) raised the interest rate on federal funds (the rate for overnight loans from one financial institution to another from funds held at the Federal Reserve) from a range of 0.00-0.25 to 0.25 to 0.50.
Full release here.
On the surface, this seems much ado about nothing, or, almost nothing, but the Fed's long-awaited rate increase will have ramifications across the investing and business world.
For instance, the first salvo will be to any and all loans tied to the Prime Rate, which include most credit card, revolving debt and home equity loans and lines of credit.
Shortly after the Fed's rate announcement, major banks began announcing that they were raising their prime lending rate from 3.25 percent to 3.50 percent. Wells Fargo was the first bank to announce the rate hike, followed in rapid pace by Chase, Citibank and Bank of America. The increases are effective immediately.
What that means is if you've been paying 4% (not unusual) on a home equity loan, your new rate will be 4.25%. In real terms, on $250,000, that's an additional $37 per month. Not much, one might think, but, considering that the Fed plans on continuing to increase their base FF rate - which will green light the banks to up the prime rate - the cost of borrowing will simply continue to increase.
Many analysts have shied away from calling the Fed's move ill-timed, though an equal number has called it "too late." What it certainly is not is "too little." Insofar as it is the smallest rate hike imaginable, its effects will be far reaching.
In larger, banking terms, try this: A billion dollars borrowed over seven years at 1/4% would cost $12,010,470 per monthly payment. At 1/2%, it's $12,116,790, an increase of $106,000 a month. That same billion, borrowed for just one year at 1/4% interest requires a monthly payment of $83,446,220. At 1/2%, it's 83,559,200, an increase of $112,980 per month.
With numbers like these being thrown around routinely - and daily - by the largest financial institutions, hedge funds, brokerages and their ilk, something is bound to blow up sooner, rather than later. Already we've witnessed carnage in the junk bond markets, which have been pounded in anticipation of today's Fed announcement and there will surely be more to come.
On wall Street, stocks appeared to love the move, with the Dow up 224 points, the S&P gaining 29.66, and the NASDAQ ahead by 75.77. This looks all well and good right out of the box, but there's a quadruple witching day coming up Friday on options, and year end is now within spitting distance.
It might be wise to square up one's positions - if one has any - before the end of 2015 to take advantage of tax breaks for losses and/or long term gains. Precious metals moved rather sharply throughout the day and did not pull back after the Fed announcement, despite the dollar remaining strong, which is the obvious outcome.
For now, the strong dollar will continue to stoke deflation, as imports will become cheaper. To anybody who's been Christmas shopping, the price structure is obviously on the low end this season and will likely be bargain basement after the holiday shopping ends.
Most Americans will find bargains in stores, if they have any money with which to purchase them after paying what are sure to be higher credit card bills.
According to the Federal Reserve, the US economy is supposed to be strong enough now to absorb this rate increase and the associated nuances. At this juncture, it's far too early to tell.
We shall see in coming weeks and months. As Ernest Hemingway so eloquently put it in The Sun Also Rises: "How did you go bankrupt?"
"Two ways. Gradually, then suddenly."
Full release here.
On the surface, this seems much ado about nothing, or, almost nothing, but the Fed's long-awaited rate increase will have ramifications across the investing and business world.
For instance, the first salvo will be to any and all loans tied to the Prime Rate, which include most credit card, revolving debt and home equity loans and lines of credit.
Shortly after the Fed's rate announcement, major banks began announcing that they were raising their prime lending rate from 3.25 percent to 3.50 percent. Wells Fargo was the first bank to announce the rate hike, followed in rapid pace by Chase, Citibank and Bank of America. The increases are effective immediately.
What that means is if you've been paying 4% (not unusual) on a home equity loan, your new rate will be 4.25%. In real terms, on $250,000, that's an additional $37 per month. Not much, one might think, but, considering that the Fed plans on continuing to increase their base FF rate - which will green light the banks to up the prime rate - the cost of borrowing will simply continue to increase.
Many analysts have shied away from calling the Fed's move ill-timed, though an equal number has called it "too late." What it certainly is not is "too little." Insofar as it is the smallest rate hike imaginable, its effects will be far reaching.
In larger, banking terms, try this: A billion dollars borrowed over seven years at 1/4% would cost $12,010,470 per monthly payment. At 1/2%, it's $12,116,790, an increase of $106,000 a month. That same billion, borrowed for just one year at 1/4% interest requires a monthly payment of $83,446,220. At 1/2%, it's 83,559,200, an increase of $112,980 per month.
With numbers like these being thrown around routinely - and daily - by the largest financial institutions, hedge funds, brokerages and their ilk, something is bound to blow up sooner, rather than later. Already we've witnessed carnage in the junk bond markets, which have been pounded in anticipation of today's Fed announcement and there will surely be more to come.
On wall Street, stocks appeared to love the move, with the Dow up 224 points, the S&P gaining 29.66, and the NASDAQ ahead by 75.77. This looks all well and good right out of the box, but there's a quadruple witching day coming up Friday on options, and year end is now within spitting distance.
It might be wise to square up one's positions - if one has any - before the end of 2015 to take advantage of tax breaks for losses and/or long term gains. Precious metals moved rather sharply throughout the day and did not pull back after the Fed announcement, despite the dollar remaining strong, which is the obvious outcome.
For now, the strong dollar will continue to stoke deflation, as imports will become cheaper. To anybody who's been Christmas shopping, the price structure is obviously on the low end this season and will likely be bargain basement after the holiday shopping ends.
Most Americans will find bargains in stores, if they have any money with which to purchase them after paying what are sure to be higher credit card bills.
According to the Federal Reserve, the US economy is supposed to be strong enough now to absorb this rate increase and the associated nuances. At this juncture, it's far too early to tell.
We shall see in coming weeks and months. As Ernest Hemingway so eloquently put it in The Sun Also Rises: "How did you go bankrupt?"
"Two ways. Gradually, then suddenly."
Pre-FED-Hike Notes for the Truly Deranged and/or Excited
As of 12:30 pm ET, amazingly, the Dow, NAZ and S&P are all right at (or pretty damn close) both their 40 and 200-day MAs.
In other words, the entire market will be essentially flat going into the FOMC announcement. No clues for anyone, except that move up in PMs this morning.
Putting on my best guessing hat - which stragely resembles a dunce cap - I'd say the 0.25% rate hike is all but a done deal. The Fed has gone too far and they know it.
This is really a now-or-never condition, and they must go with NOW, because NEVER doesn't really mean never. It means they will have to do this at some point. There will be significant pain ahead, but only for those who are highly leveraged, over-indebted or just plain stupid.
Everyone has had seven years to prepare for this moment. If you haven't gotten a whiff of what's coming, you are not to be pitied. You will be dismembered and disposed of by the gnarly beast of deflation.
That's my take.
Final note: Yesterday, over at ZeroHedge, I reiterated my call from about two years ago that silver would see $12. Another poster said $8.25 was the target, or bottom. I'm fine with that. Will be buying at $12 and buying even more if and when it ever gets to $8.
90 minutes to lift-off. Good luck to all.
In other words, the entire market will be essentially flat going into the FOMC announcement. No clues for anyone, except that move up in PMs this morning.
Putting on my best guessing hat - which stragely resembles a dunce cap - I'd say the 0.25% rate hike is all but a done deal. The Fed has gone too far and they know it.
This is really a now-or-never condition, and they must go with NOW, because NEVER doesn't really mean never. It means they will have to do this at some point. There will be significant pain ahead, but only for those who are highly leveraged, over-indebted or just plain stupid.
Everyone has had seven years to prepare for this moment. If you haven't gotten a whiff of what's coming, you are not to be pitied. You will be dismembered and disposed of by the gnarly beast of deflation.
That's my take.
Final note: Yesterday, over at ZeroHedge, I reiterated my call from about two years ago that silver would see $12. Another poster said $8.25 was the target, or bottom. I'm fine with that. Will be buying at $12 and buying even more if and when it ever gets to $8.
90 minutes to lift-off. Good luck to all.
Tuesday, December 15, 2015
Last Dance Before Yellen's Rate Hike; Stocks at the High End... with Tom Petty Video
In tribute to today's madcap stock rally in the face of tomorrow's FOMC policy rate decision, we present Tom Petty and the Heartbreakers classic, "Mary Jane's Last Dance."
Picture Mary Jane as Wall Street, High Yield Bonds, the global economy, or all three. Tom Petty is the Federal Reserve. That's all for today. Tomorrow's a big one.
Picture Mary Jane as Wall Street, High Yield Bonds, the global economy, or all three. Tom Petty is the Federal Reserve. That's all for today. Tomorrow's a big one.
Monday, December 14, 2015
Is a Global Recession Just Ahead, or, A Global Depression?
Gas prices at the pump haven't been this low since 2009, though the prices back then maintained for a very brief time, as oil plummeted during the financial crisis (remember that?), but quickly rebounded as the Fed and other central banks added extreme amounts of liquidity to markets globally and before long, crude oil was back in the $90-100/barrel range.
Last year, the price of a barrel of crude - both Brent and WTI - began a precipitous decline, cutting in half the traded price. As 2014 turned to 2015 and many culprits were blamed (Saudi Arabia, US frackers, Russia(?), the price continued to hover in the $45-65 range. By late summer, all bets were off as the price of a barrel of crude fell into the low-$40 range, and then this month declined into the 30s.
While gas at $2/gallon and lower is a boon for drivers, especially in the US, where commuters and businesses were burdened with gas above $3.00 and sometimes over $4/gallon for years, it's not such a great deal for oil producers, especially the aforementioned frackers, whose marginal profitable price per barrel was estimated at somewhere between $45 and $75 per barrel.
Plenty of rigs have gone idle, but debt has to be serviced, and most of these drillers are on the hook for millions, borrowed from banks when the getting was good, now having to pay back the costs of exploration, drilling and extraction while operating at a loss.
The oil patch is just one element of the global liquidity crunch which may be about to enter a new, more dangerous phase, when, in two days time, the FOMC of the Federal Reserve is supposed to raise the federal funds rate for the first time in more than seven years.
The Fed plans to set the rate at 0.25% for money banks can borrow from the Fed, and, while that may not sound like a big deal to most, it certainly is to banks and corporations, which have been borrowing and spending at record paces since mid-2009.
With the FOMC rate policy decision now less than 48 hours away, there's a growing nervousness on Wall Street over this unprecedented move by the Fed. It's unprecedented because there's a vast amount of evidence that the bubble the Fed has blown is about to be not only pricked, but popped and blown wide open. Simply put, the party is about to end, and the drunks on the dance floor will be looking for a ride home, but nobody will be available for a safe trip, because not just the investment and corporate community, but the Fed itself, is staggering and woozy.
It may be a big, bad boogey man, like the 2000 scare, or the Mayan calendar, or those pesky asteroids which dare to come within 100,000 miles of dear planet earth. Or, it could be the real thing.
Nothing lasts forever, and, from the looks of the bond, commodity, and emerging markets, the long "recovery" and stock market rally seems to have run out of steam. Global trade is down, global GDP keeps being revised lower, US manufacturing is fading, China is becoming a basket case. It all points to reduced growth, or, in proper recession terms, negative growth.
If you're in the market, there's still a day and a half to get out, and probably more, if you can handle small losses. If you're not in the market, but still have to drive, eat, and breath, good news. In recessions and, especially, depressions, everything (except debt) is cheaper.
Hedge, buy, or sell accordingly.
--FR
Last year, the price of a barrel of crude - both Brent and WTI - began a precipitous decline, cutting in half the traded price. As 2014 turned to 2015 and many culprits were blamed (Saudi Arabia, US frackers, Russia(?), the price continued to hover in the $45-65 range. By late summer, all bets were off as the price of a barrel of crude fell into the low-$40 range, and then this month declined into the 30s.
While gas at $2/gallon and lower is a boon for drivers, especially in the US, where commuters and businesses were burdened with gas above $3.00 and sometimes over $4/gallon for years, it's not such a great deal for oil producers, especially the aforementioned frackers, whose marginal profitable price per barrel was estimated at somewhere between $45 and $75 per barrel.
Plenty of rigs have gone idle, but debt has to be serviced, and most of these drillers are on the hook for millions, borrowed from banks when the getting was good, now having to pay back the costs of exploration, drilling and extraction while operating at a loss.
The oil patch is just one element of the global liquidity crunch which may be about to enter a new, more dangerous phase, when, in two days time, the FOMC of the Federal Reserve is supposed to raise the federal funds rate for the first time in more than seven years.
The Fed plans to set the rate at 0.25% for money banks can borrow from the Fed, and, while that may not sound like a big deal to most, it certainly is to banks and corporations, which have been borrowing and spending at record paces since mid-2009.
With the FOMC rate policy decision now less than 48 hours away, there's a growing nervousness on Wall Street over this unprecedented move by the Fed. It's unprecedented because there's a vast amount of evidence that the bubble the Fed has blown is about to be not only pricked, but popped and blown wide open. Simply put, the party is about to end, and the drunks on the dance floor will be looking for a ride home, but nobody will be available for a safe trip, because not just the investment and corporate community, but the Fed itself, is staggering and woozy.
It may be a big, bad boogey man, like the 2000 scare, or the Mayan calendar, or those pesky asteroids which dare to come within 100,000 miles of dear planet earth. Or, it could be the real thing.
Nothing lasts forever, and, from the looks of the bond, commodity, and emerging markets, the long "recovery" and stock market rally seems to have run out of steam. Global trade is down, global GDP keeps being revised lower, US manufacturing is fading, China is becoming a basket case. It all points to reduced growth, or, in proper recession terms, negative growth.
If you're in the market, there's still a day and a half to get out, and probably more, if you can handle small losses. If you're not in the market, but still have to drive, eat, and breath, good news. In recessions and, especially, depressions, everything (except debt) is cheaper.
Hedge, buy, or sell accordingly.
--FR
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