SOUND FOOTING? ILLUSIONS

"Those of a bullish persuasion would argue these dynamics confirm the underlying strength and stability of the U.S. economy. I’ll counter with the view – one supported by Fed data - that massive federal deficits and Federal Reserve monetization have created unprecedented and deeply systemic financial and economic distortions.

An economy on firm footing would be one demonstrating at least a reasonable balance within the real and financial sectors. One would hope to see sound money and productive Credit financing capital investments throughout the economy - liquidity/spending power entering the system primarily in the process of financing economic wealth creation in the real economy (as opposed to financing consumption and asset speculation). "

http://www.prudentbear.com/2013/09/z1-and-doves.html Doug Noland

 

The mere mention of a SLOWING of FED asset purchases down from the current $85B a month would have risk markets convulsing, interest rates shooting higher. SO at the last FED meeting we had a STATUS QUO instead of any even mild change in FED actions and policy.

 

The predictions now for GDP and the REAL economy are weaker for the 2nd half than just earlier this summer? How can this be? New highs in the stock markets, near or record lows in junk bonds and yields in general?

Federal spending and FED asset purchases have replaced SOUND money and investment, which lead to REAL economic growth and solid job formation.....now RISK assets vs home owners equity are where the avg citizens wealth resides.......I don't like the sound of that....

 

I think the FED has now painted itself in a corner, the crack addict economy needs to know there will be NO change in the dose, or withdrawl symptons will surely be manifested.

 

We have the ILLUSION of a real economy and sound policy....imagine that.

 

Duratek

LIFE SUPPORT

Fed doves make case for patience on tightening policy Reuters
The Federal Reserve must be patient in deciding when to scale back bond purchases, top officials said on Friday, with one arguing it could wait "years" to lift interest rates and another suggesting ...

What is bothering the Federal Reserve after holding down Fed Funds rate to 0 going on 5 years....we are "years away" from beginning to normalize interest rates and policies?

Economic growth is barely running at 2%, 5 years into the most dangerous FED experiement in their 100 years history, which has helped to create bubbles on multiple levels, including bonds, gov finance, interest rates, bond yields, corporate debt, stock valuations and who knows what else.

This feels like "in for a penny, in for a pound" policy making. And the model set where we will continue with the same policies even though we are not getting the results we want, so more of the same thing will eventually get us to where we need to be.

Each month adds another $85B that the FED will need to unwind at some point, most of the STIMULUS has found its way into NON PRODUCTIVE areas of economy like STOCKS.

But the new highs in stocks mostly seems to benefit the top 1% of our population, almost as deceptive as the "affordable care act", who has seen their healthcare bills go down?

I do think it could have been worse if the FED did nothing, but by now one would hope we were well on our way to a true healing and growing balanced economy not needing to be force fed $BILLIONS of printed $'s.

It feels like we HAVE NOT healed, but instead have reflated the bubbles and this leads me to conclude...they will BURST again.....my only hope is the fallout is not as bad as many predict it will be.

D

THE NEED FOR CONTINUED FED PROPPING

"Financial Conditions" http://www.prudentbear.com/2013/09/sept-20.html

"As someone who places “Financial Conditions” at the heart of market and economic analysis, I felt Bernanke had opened a real can of worms on the policy and communications front.

From Wednesday’s FOMC statement: “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”

Have Financial Conditions really tightened in recent months? Stock prices have surged to all-time record highs. The S&P500 has gained 7.7% in three months, with Nasdaq up 12.4%. The small cap Russell 2000 has surged 11.3% in three months. The Nasdaq Biotech index has jumped 24.8%, increasing its 2013 gain to 53.3% (2-yr gain of 116%). Internet stocks enjoy a three-month gain of 12.6%. The average stock (Value Line Arithmetic) is up 11.2% in three months. Stock prices indicate the opposite of tightening."

The mere mention of a SLOWING in QE by the FED had sent the markets into a tizzy. Prior to the recent FED meeting, it was widely anticipated that the FED would begin to lightenup the pace of their QE injections from current $85 B amonth to something slighly less. INSTEAD we got NO change to policy because of "tightening financial conditions". Was this mostly the back up of mortgage borrowing costs?

Re-INFLATING a burst bubble will only cause a new bubble to form of even greter proportions. The markets now will not tollerate even the mere mention of a change to the status quo, every month that passes and the staggering growth of the FED balance sheet makes any extracation from this to be less likely where it would not cause a gross reaction.

http://research.stlouisfed.org/publications/usfd/page3.pdf The adjusted Monetary BAse has grown by nearly $1 Trillion from just the start of this year......an historic amount judged against anything in history before it.

Yet 5 years of such actions have not YET brought us to a point where we can begin to see some unwinding, even a slowing of the CRISIS managment of our economy and money??

I think the FED and Central bankers have painted themselves into a corner, the further they went, the further they realized they would have to go. I do not think they know where this goes from here, this is a gross experiement, and we are the Guninee Pigs.

You cannot print your way to prosperity and an economy that can sustain itself, for now I guess we will have to make do with what we have. Not willing to deal with the withdrawl symptoms, the CRACK ADDICT ECONOMY will be continuously fed more drugs.....making the dependency greater, the withdrawl worse....when it comes.

D

DOW MEGAPHONE TOPPING PATTERN

*click to enlarge

This formation is still in play. The adjustment process and deleveraging from decades of credit bubble activity has been delayed by historic Fed actions, and now world CB's.

Delaying is not fixing.


http://www.prudentbear.com/2013/08/weak-links-and-transmission-mechanisms.html
"Fed QE notwithstanding, I believe the market backdrop today implies an important tightening of financial conditions going forward. Policy measures – including boosting QE – do have the potential to delay this tightening, although with the cost of only exacerbating the wide gulf that has developed between inflated global securities prices and deteriorating economic prospects."

D

"SIGNS OF A TOP" MARGIN DEBT FOLLOW UP

http://www.mauldineconomics.com/frontlinethoughts/signs-of-the-top

When margin debt begins to unwind, that's when the selling gets nasty, and why it leads to ALL bottoms. We are now in the TOP zone, more margin can be added, but it's in process of peaking....that's how you make a top. BE CAREFUL going forward, it doesn't matter WHY a stock should be good, they will ALL stumble badly when the music stops.

D

MARGIN DEBT NEAR RECORD LEVELS

http://seekingalpha.com/article/1246731-nyse-margin-debt-and-the-s-p-500-a-sign-of-vulnerability

When is a Bubble not a Bubble?
http://www.thefiscaltimes.com/Blogs/Peek-POV/2013/07/22/Is-Bernanke-Blowing-Smoke-or-Bubbles.aspx#page1

NEVER

D

PENSION FUND TIME BOMB

"The recovery in the U.S. state pension system suffered a setback in 2012 as the huge funding shortfall in a large swath of state pensions swelled more than 20 percent, interrupting two years of improvement following the devastation of the financial crisis.
The shortfall in 109 of the nation's state pension plans, which guarantee retirement for millions of public workers such as police, firefighters, and teachers rose to $834.2 billion in 2012, up from $690.3 billion the previous year, according to a new report by Wilshire Consulting, a unit of independent investment management firm Wilshire Associates.
The report highlights the uphill struggle faced by many of the state pension plans nationwide and is a reminder that financially strained state governments will have to make some tough choices in order to make up the shortfall.
It also shows state pension fund managers are continuing to up their exposure to less conventional assets such as real estate, private equity, hedge funds and commodities as they try to boost their returns and diversify away from over exposure to volatile equities."

94% of Corporate pension funds underfunded
http://www.thinkadvisor.com/2013/04/11/94-of-pension-plans-underfunded-wilshire


 Chicago debt downgraded
http://articles.chicagotribune.com/2013-06-06/business/chi-moodys-downgrades-illinois-20130606_1_pension-reform-negative-outlook-ratings-services

Detroit already bankrupt, will the FED now bail out the States? VIVA the recovery!

D

CLARIFY WHY QE WILL NOT, DOES NOT WORK IN THE LONG RUN

"Dr. Richebacher persuasively argued that rising consumer price inflation was the least problematic inflationary manifestation, as it could be rectified by determined (Volcker-style) monetary tightening. Presciently, Richebacher viewed asset inflation and Bubbles as the much more dangerous inflationary strain - too easily tolerated, accommodated or even propagated.

It’s no coincidence that periods of low consumer price inflation preceded the Great Depression and the bursting of the Japanese Bubble. I would further note that consumer price inflation was relatively contained prior to the bursting of the tech and mortgage finance Bubbles. But to claim this dynamic was caused by tight monetary policy is flawed thinking. It was just the opposite.

I would argue that major monetary inflations, along with attendant investment and asset Bubbles, tend to boost the supply of goods and services. Myriad outlets arise that readily absorb inflated spending levels, working to avail the system of a rapid increase in aggregate consumer prices. Booming asset markets become magnets for inflationary monetary flows, while a boom-time surge in more upscale and luxury spending patterns also works to restrain general price inflation. Moreover, a boom in trade and international flows ensures strong capital investment and an increased supply of inexpensive imports (think China, Asia and technology). "

http://www.prudentbear.com/2013/07/inflationphobia.html#more Doug Noland

The FED has NOT been able to create INFLATION, and the money they create each month goes into RISKY ASSETS, created myriad bubbles more dangerous than before returning NO longer benefits.

SO a FEW MEN determine the fate of everyone, f'ing it all up.....the rich got wealthier, the poor got poorer, all under the leadership of a popular Democrat, imagine the hypocrisy?

D

SPX 500 DIVIDEND YIELD DOES NOT CONFIRM BULL MKT

Click to enlarge**

Does the current 1.9% yield look like this is what you see at beginning of Bull markets?
Exactly, with the new FED engineered stock market, we are witnessing the largest bubble blown in the history of the stock market.

It is my suspicion, when it BLOWS, what follows will also be historic.

D

Respected Prognosticator Bill Fleckenstein "This will end in disaster"

http://finance.yahoo.com/blogs/talking-numbers/fleckenstein-fed-policy-end-disaster-100312379.html

Worth a listen......"don't know WHEN, but this will ebnd in disaster"

FED LESSONS NOT LEARNED

http://www.prudentbear.com/2013/07/bernankes-comment.html#more
Doug Noland weekly comments

"Significant Fed balance sheet expansions should be temporary and then reversed as soon as possible. The Fed should refrain from non-crisis asset purchases/liquidity injections – and should limit its open-market activity to Treasury bills. The Fed should not accommodate a doubling of mortgage debt in six years. It shouldn’t then accommodate a doubling of federal debt in four. Fed policymaking should not unduly impact system Credit and resource allocation – albeit to housing or, more recently, the federal government.

The Fed should avoid the slippery slope of intervening in the markets in the name of promoting economic growth. Its policies shouldn’t distort market risk perceptions or the pricing of finance. This will only fuel asset inflation, Credit Bubbles and the misallocation of real and financial resources. The Fed should not accommodate persistently large current account deficits. These only promote liquidity excesses and global financial and economic imbalances. The Fed must never set off on an experimental path, but should instead strive toward a stable and conservative rules-based policy regime. "

When I began writing about the financial landscape and markets some 15 years ago, I never envisioned we would arrive at a place like now exists. A place where the FED and other CB'S are in the drivers seat and are leading the LEMMINGS right over the cliff! And they mostly all follow as there is little left as alternative.

A HUGE mispricing of risk exists today, and there is a HUGE disconnect between the markets and REALITY. Don't you know at some point in the future reality will meet head on with perceptions?

5 years into their programs, the FED cannot come off its QE and ZERO rate programs? With stocks at new RECORD HIGHS, the FED cannot signal the end of its easing campaign? The economy cannot survive on its own 2 feet?

With just a mention and a SNIFF of the FED changing its direction, or even SLOWING down its QE program, the market had a VIOLENT reaction and interest rates jumped.

Now, a few calming words, status quo forever, and the VIX which measure volatility and FEAR has fallen back and the market has recouped all its losses.....sounds normal to me.....

What I THINK you have just witnessed is a WARNING SHOT......if you choose to not heed the warning then IMHO you are no more than the gambler at the craps table in a nice run who throws the dice one more time, double or nothing....as with the FED no one can possibly lose but the SAVERS!

WHAT POLICY that encoruages an ALL IN mentality is a good one, will end well? 0% rates doesn't encourage the Government to any fiscal restraint, and doesn't pay deposits a thing.

When "ALL ARE IN", there is nary anyone left to get in, and the opening for the exit door is rarified thin.

Fox news reported over the weekend that Small Business are not encouraged, nor optimistic about the future. For every 3 businesses hiring, 4 are firing. In another sign of pessimism, inventories fell and that will take a bite out of next reading of GDP.

"DON'T FIGHT THE FED", well that works for awhile doesn't it? But I think they tried to signal all good things come to an end, and the market didn't like it one bit. SO it appears it backed off sending signals they might end the ENDLESS MONEY PRINTING SCHEME.

Something about the FED policy in uncharted territory and untried experiements in FED MONETARY AND INT RATE POLICY I find worrisome...maybe it's just me.

D

MEGAPHONE TOP

What I'm watching, to see if we had throw over and now TEST of 1600 area, and maybe even a negating of this multi year formation.

D

GOLD FORTUNES

Gold could be headed for $900 area, this is what happens when somethng begins to UNWIND, think Bonds, think STOCKS, IMHO

D

PARSING FED COMMENTS

STOCKS SELLOFF IN RESPONSE TO FED COMMENTS ON "TAPERING"

If the FED backs off the back stop peddle, hopefully it is because economy can sustain itself.

Real issue is $3 T plus of bond purchases will not unwind quietly. When is last time bonds and stocks sold off in unison?

D

PRODUCTION FALLS BELOW CAPACITY UTILYZATION

Be a casual observer.....what do you see in the past when that occurred?

Years late 1999....and 2007......

D

NOT MUCH RECOVERY HERE

And yet the FED and friends will continue with their destructive interest rate and QE programs which are causing an even greater them and us VOID.

In a "REAL" recovery, you wouldn;t expect to see a chart like this. Just one of the reasons, IMHO I think the Bear is not over.

D

TEST OF THE BREAK?

Price stopped right at the outer break of trend line, nothing is for nothing. My gut says, we rebound some, but a break now or in a few days of the upper line could spell trouble

D

ISM INDEX FALLS BELOW 50.00 to 49.00

As a "casual" observer, what happens in the past when the ISM INDEX falls below 50.00?
 (economic retraction) and how does that line up with past market tops?

D

NIKK COLLAPSE JUST BEGINNING?

Fall to 10,000 area very possible, as NOTHING was holding this thing up.
Watch the interest rates.....

D

HAS BOND BUBBLE BURST?