Sell The Bonds, Sell The Stocks, Sell The House – Dread The Fed!

There is going to be carnage in the casino, and the proof lies in the transcript of Janet Yellen’s press conference. She did not say one word about the real world; it was all about the hypothecated world embedded in the Fed’s tinker toy model of the US economy.

Yes, tinker toys are what kids used to play with back in the 1950s and 1960s, and that’s when Janet acquired her school-girl model of the nation’s economy.

But since that model is so frightfully primitive, mechanical, incomplete, stylized and obsolete, it tells almost nothing of relevance about where the markets and economy now stand; or what forces are driving them; or where they are headed in the period just ahead.

In fact, Yellen’s tinker toy model is so deficient as to confirm that she and her posse are essentially flying blind. That alone should give investors pause—-especially because Yellen confessed explicitly that “monetary policy is an exercise in forecasting”.

Accordingly, her answers were riddled with ritualistic reminders about all the dashboards, incoming data and economic system telemetry that the Fed is vigilantly monitoring. But all that minding of everybody else’s business is not a virtue—-its proof that Yellen is the ultimate Keynesian catechumen.

This stupendously naïve old school marm still believes the received Keynesian scriptures from the 1960s-era apostles James (Tobin), John (Galbraith), Paul (Samuelson) and Walter (Heller).

But c’mon.Those ancient texts have no relevance to the debt-saturated, state-dominated, hideously over-capacitated global economy of 2015. They just convey a stupid little paint-by-the-numbers simulacrum of what a purportedly closed domestic economy looked like even back then. Continue reading

What Does Today’s “Rate Hike” Mean?

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

The Federal Reserve raised the interbank borrowing rate today by one quarter of one percent or 25 basis points. Readers are asking, “what does that mean?”

It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline.

Prior to today’s Fed announcement, the interbank borrowing rate was averaging 0.13% over the period since the beginning of Quantitative Easing. In other words, there has not been enough demand from banks for the available liquidity to push the rate up to the 0.25% limit. Similarly, after today’s announced “rate hike,” the rate might settle at 0.25%, the max of the previous rate and the bottom range of the new rate.

However, the fact of the matter is that the available liquidity exceeded demand in the old rate range.The purpose of raising interest rates is to choke off credit demand, but there was no need to choke off credit demand when the demand for credit was only sufficient to keep the average rate in the midpoint of the old range. This “rate hike” is a fraud. It is only for the idiots in the financial media who have been going on about a rate hike forever and the need for the Fed to protect its credibility by raising interest rates.

Look at it this way. The banking system as a whole does not need to borrow as it is sitting on $2.42 trillion in excess reserves. The negative impact of the “rate hike” affects only smaller banks that are lending to businesses and consumers. If these banks find themselves fully loaned up and in need of overnight reserves to meet their reserve requirements, they will need to borrow from a bank with excess reserves. Thus, the rate hike has the effect of making smaller banks pay higher interest expense to the mega-banks favored by the Federal Reserve.

A different way of putting it is that the “rate hike” favors banks sitting on excess reserves over banks who are lending to businesses and consumers in their community.

In other words, the rate hike just facilitates more looting by the One Percent.

Federal Reserve Rate Hike At ‘Precisely The Wrong Time’ – Faber

Submitted by Mark O’Byrne  –  GoldCore

Marc Faber, the editor of the Gloom, Boom & Doom Report, warned yesterday that the Federal Reserve has raised rates at “precisely the wrong time.”

Gold_Faber

Speaking to CNBC just before the interest rate decision, Faber warned that it’s the wrong time because “the global economy has decelerated very badly, and many countries are already in recession, or going into recession.”

The rate hike separated the Fed from other major central banks – The ECB, Bank of England, PBOC, the Bank of Tokyo and elsewhere that are all battling deflation and desperately trying to stimulate some form of sustainable economic growth.

Yesterday’s hike still leaves U.S. monetary policy extremely loose, and Fed officials have signaled they will act cautiously from to nurture a very tenuous recovery indeed.

Faber said the outlook for American equities looks weak:
“I don’t think U.S. stocks are attractive by any measurement. They are expensive and earnings are going down, and if anything, eventually interest rates will be higher.”

Marc Faber is a strong advocate of owning physical gold and silver which he describes as being a way to become “your own central bank.” He believes an allocation and diversification into physical bullion will serve as vital financial insurance and that storing gold in Singapore is prudent as Singapore is the safest place to own bullion in the world today.

Video can be watched on CNBC here

The Economy They Hope Or The Money That Is?

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Now that the FOMC has done it, we get to hear about how it was surely the “right” time for it. Unlike September, conditions are supposedly an order of magnitude more settled. That has given the policymaking economists the green light to make sure they start the normalization process before “overheating” becomes the central concern. With August a fading memory, the unemployment rate looms largest for economists. This is not to say that they are convinced the economy is already taking off, only that their models tell them that it is about to (any minute now).

With August’s unpleasantness supposedly behind, there is nothing left to justify yet another orthodox non-action.

Top Fed officials have been saying for months they believed the economy was nearly strong enough to tolerate an increase in the benchmark short-term rate from near zero, where it has been since December 2008. But they have hesitated to move.
The last instance was in September, when the Fed pointed to worries about turbulence in financial markets and uncertainties about growth overseas—particularly in China—as reasons to stay put.

The October FOMC meeting, and the financial conditions contained therewith, apparently sealed all preferences. From Barclay’s (via BusinessInsider):

When we moved our rate hike assumption to March 2016, we assumed that the volatility in financial markets would be longer lasting and the Fed would have trouble resolving their differences about the viability of rate hikes before year-end. The October FOMC statement and Chair Yellen’s testimony to Congress were more hawkish than expected, suggesting the committee saw downside risks from global developments as having diminished and activity pointing to a “live possibility” of a rate hike in December.

Of course, the unemployment rate is quite flawed, as even the FOMC might admit, and it was curious to see the Fed’s own industrial production statistic so clearly in recessionsignals released just today, but those, I think, have been flashed to secondary considerations in lieu of this assumed financial placidity. That, again, owes to the models that project a much better economy even though there truly isn’t one right now. Thus, as long as financial markets don’t threaten outright revolt, Janet Yellen seems content to let the modeled trajectory reveal itself. Continue reading

“Janet… This Is Bill…”

Submitted by William Bonner, Chairman – Bonner & Partners

Weight of the World

PARIS – Well, this is the big day. The FOMC – the group within the Fed that votes on policy – is supposed to make an historic announcement. It is supposed to begin going “back to normal” with interest rates.

Late at night, after hours of drinking, meditation, and prayer, we decided to get the inside scoop. Here’s how it went…

 

jyellWho the hell is this? Bill? Didn’t Uma Thurman, you know…never mind.

Photo via trend-online.com

 

“Yo… Janet. This is Bill.”

“Excuse me… How did you get this number?”

“I asked the NSA. It has everyone’s number.”

“I’m sorry… but I have to hang up. I have a big day tomorrow.”

“Yes… that’s what I wanted to talk to you about. I sympathize with you completely.”

“What?”

“You must feel the weight of the world on your shoulders. Your decisions will affect the entire planet’s economy. Speculators will get rich… or lose their shirts. Businesses will flourish… or go broke. Jobs will be gained… or lost. Lives will be affected… some of them in devastating ways.”

“We are just doing our job.”

“Yes… And no matter what you do… some people will complain. If there is a bear market or a recession… they will blame you. It isn’t fair, is it?”

“Well… we do our best.”

“Yes… and who could deny that you’ve done a magnificent job? Your interest rate policies have helped bring about a recovery. We owe it to you. If you had let the market set interest rates, it would have been a disaster. Instead, you knew better… As Ben Bernanke put it, you had the ‘courage to act.’ And it paid off.”

“I’m afraid I will have to go…”

“But… your rate policy has been so successful, I can’t help but wonder: Why stop now? I mean, you’ve demonstrated that you can choose a better rate than the market; why would you want to go back to…” Continue reading