Archive for the ‘Uncategorized’ Category

Doubling Down on Bad Ideas

Tuesday, September 6th, 2016

Uh oh.

Until now, about the only thing good you could say about the Federal Reserve Board in recent years is that it hasn’t followed central banks in Europe and Japan by lowering interest rates below zero.

But that may be where we’re going next.

Fed Vice Chair Stanley Fischer told Bloomberg Surveillance last week that he and his Fed colleagues believe that negative interest rates are a legitimate tool for central bankers to use in their efforts to achieve full employment and economic health.Fischer

If by Fed colleagues, he means his imaginary friends, we should be okay.  But if he means his gal pal Janet Yellen et al, look out below.  Over the cliff we go.

Negative rates would be doubling down on failed policies. If you’re a political figure, like Fed Chair Yellen and her Fed brethren, it would be anathema to admit that you’re wrong about anything, so if something doesn’t work, you rationalize that you just didn’t pour enough gasoline on the fire and you pour more.

Anyone who has to pay for health insurance will recognize the doubling-down approach being used in the coming election by the Democrats who gave us Obamacare. The Affordable Care Act, to the surprise of no one who is not a Democratic member of Congress, has become unaffordable, with a majority of exchanges shutting down because they are losing money. But, with premiums increasing by about 30% this year in some states, Democrats believe the answer is more government control of healthcare. The insurers, of course, are the bad guys, because they are no longer willing to lose billions propping up Obamacare. (more…)

Something’s Rotten …

Monday, April 4th, 2016

“That it should come to this!”

                                  Hamlet, Act I, Scene II

Any student of Shakespeare will recall that Hamlet’s procrastination did not bode well for Denmark.

Centuries later, the Scandinavian country has Tivoli and perhaps the world’s best ice cream, but it’s not exactly a world power.  It may not be Hamlet’s fault–after all, Denmark is even more socialistic than the U.S. and Canada–but his hesitation was not a good thing for him or his country.YellenHamlet 2

So what does this have to do with Janet Yellen?  She chairs the Federal Reserve Board, which, like Denmark, has wielded its power clumsily, although it doesn’t even produce ice cream.  And, like the tragic prince, she will likely be remembered more for her inaction than for her action.

Even Hamlet didn’t procrastinate for years, although it may seem that way if you watch a poor production of the famous play. Also, like the melancholy Prince of Denmark, Ms. Yellen seems to be collapsing under the weight of the world and fretting over the potential consequences of her actions. And so, like Hamlet, she does nothing.

Her words before the New York Economic Club last week could have come straight out of Hamlet. Princess Yellen may be far less eloquent than the young prince of Denmark, but the parallels between what she said and what he said are significant. (more…)

Going Negative

Monday, February 29th, 2016

“More money cannot cure what too much money created.”

                                   Frank Hollenbeck

There’s nothing positive to say about negative interest rates.

If seven years of zero interest rate policy (ZIRP) has left the U.S. economy is such sad shape, how could negative interest rates help?  Negative rates have already been tried in Europe and Japan, and they have failed to boost the economy.

And yet some believe the Federal Reserve Board is considering replacing ZIRP with NIRP.  We’ve written plenty about the failings of ZIRP, or zero interest rate policy, and believe it would be foolish for the Fed to consider NIRP, or negative interest rate policy.

The bank of the future.

The bank of the future.

How does NIRP work?  As Zerohedge explained, “The process can be as simple as the central bank charging its member banks for holding excess reserves, although the same thing can be accomplished by more roundabout methods such as manipulating the reverse repo market.”

In other words, central banks created trillions of dollars in excess reserves throughout the banking system and now they want to charge banks for holding those reserves.  The idea is to coerce banks to lend the money, which should stimulate the economy.  (more…)

Democrats Offer Socialism vs. Near Socialism

Monday, February 15th, 2016

Being America, we can choose whoever we want to be President of the United States.  So how did we end up with this group?

We have a self-proclaimed socialist and a former first lady no one trusts (with good reason) fighting for the Democratic nomination.  And we have a billionaire who seems to think anyone whose family didn’t come over on the Mayflower should be deported as the leading candidate for the Republican nomination. Clinton1web_2831249b Bernie

Someone reasonable may yet emerge from the pack of presidential wannabes, but let’s take a closer look at what a Sanders, Clinton or Trump presidency would mean to your finances—and to America.  We’ll start with the two Democrats this week and take on The Donald and other Republicans next week.

As for the Democrats, this is not JFK’s Democratic Party or even Bill Clinton’s.  Both Hill and Bernie are campaigning as the saviors of the middle class by campaigning to the left of President Obama. (more…)

Stock Market Continues to Set Records, But Why?

Monday, June 1st, 2015

Let’s take a simple quiz and answer the following multiple choice question.

The stock market is hitting new highs because:

  1. Corporate earnings are at an all-time high.
  2. The economy is recovering.
  3. The market is being manipulated by the Federal Reserve Board.
  4. Investors lack common sense.

Corporate earnings are supposed to drive stock prices.  That used to be true, before the market was made dysfunctional by Fed mingling, high-frequency trading, overbearing regulations and other factors.  It’s not true anymore.  At least not now. S&P 500

The stock market has been setting records, even though S&P company earnings declined 13% in the first quarter of 2015.  That follows a 14% declined in the fourth quarter of 2014.  Do you see a trend here?

As our friend Charlie Bilello of Pension Partners, LLC pointed out on Contra Corner, six out of the ten major S&P 500 sectors showed year-over-year declines, including consumer sectors, which were supposed to have benefited most from a decline in gas prices.

(more…)

Good Market Rigging vs. Bad Market Rigging

Friday, April 4th, 2014

“The markets are rigged. … These firms make their money by front-running trades. They’re using their speed advantage to buy shares first and then selling them back at a higher price. The result is higher prices for investors in those shares. That’s rigged.”                                                                                                                                      Michael Lewis

Based on the Federal Reserve Board’s actions of the past five years, you may have thought that “market rigging” was a good thing.  After all, a great deal of wealth has been created from the Fed’s bond buying – although, granted, almost all of it went to those who were already wealthy.

But suddenly, high-frequency trading is being charged with rigging the markets and it’s creating a bit of a furor.  Apparently the Fed is responsible for good rigging and HFT is responsible for bad rigging.  Consider this week’s HFT-related news:

  • Michael Lewis, author of Moneyball, was interviewed by “60 Minutes” in advance of publication of his book, Flash Boys, in which he makes the case that HFT rigs the markets against the small investor.

  • There was the heavy backlash from those who disagree with his conclusion … that is, the people who make money off of high-frequency trading.  Supporters contend that HFT has created liquidity and reduced the cost of trading for small investors.  In other words, the market is rigged against small investors, but it costs them less to make a trade.  Yippee!!
  • Then there’s The Wall Street Journal’s announcement this week that HFT is being investigated by the FBI – not the Securities and Exchange Commission (although it is participating in the investigation), the FBI.  You know, the guys who investigate bank robberies, money laundering, drug cartels and the Mafia.  And now you can add high-frequency trading to that list.  Apparently, insider trading was already taken. (more…)

Define “Forever”

Friday, November 15th, 2013


In May, when Fed Chairman Ben Bernanke said that quantitative easing could not continue forever, the stock market tanked and the word “tapering” became the most feared word on Wall Street.

This past week, during her Congressional hearing as President Obama’s nominee to become the next chair of the Federal Reserve Board, Janet Yellen said, “QE cannot continue forever.”  The market moved higher.

Is it Ben morphing into Janet or Janet morphing into Ben?

Is it Ben morphing into Janet or Janet morphing into Ben?

Both the current Fed chair and his assumed successor assured us that the party’s not over, that there are still plenty of bonds to be bought.

But “forever” seems farther away now that it was back in May.

Ms. Yellen made it clear during her hearing that there’s still plenty of work for QE to do.  Citing high unemployment, she said, “It is important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited.”

(more…)

House of Cards

Friday, July 19th, 2013

The current housing recovery is not a house of brick, but a house of cards.

The cards came tumbling down this week, as the U.S. Commerce Department reported that housing starts in June fell to their lowest level in almost a year.  At June’s pace, new housing starts would total 836,000 for the year, down 9.9% from May’s 928,000 pace.  Multi-family projects plunged 26.2%.

The announcement blunted the stock market rise initiated on Wednesday by Federal Reserve Chairman Ben Bernanke, whose warm-and-fuzzy comments (more fuzzy than warm) can be summarized as “we have no idea when quantitative easing will end and, even if we did, we wouldn’t say.”

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Market Reaction To Comments Reflects Market Efficiency

Friday, June 21st, 2013

It’s worth keeping the efficient market hypothesis in mind when considering the impact of Fed Chairman Ben Bernanke’s announcement this week that bond buying will be coming to an end.

The efficient market hypothesis suggests that share prices always incorporate and reflect all relevant information. While the hypothesis may be flawed, it should be no surprise that markets react to information, and that the announcement itself would have an impact, even though no one knows for certain when quantitative easing (QE) will end or when “tapering” or bond purchases will begin.

The price of a security at any given time reflects not only the performance of a company in the context of overall market conditions, but future expectations. So markets panicked because the Fed chief acknowledged the obvious – that QE will be ending someday.

Today’s Dow Jones Industrial Average.

Other than admitting the obvious, The Fed’s comments were inconclusive, with plenty of “ifs,” “ands” and “buts,” and the market performance has been similarly inconclusive, jumping up and down enough to make investors seasick.

Today’s S&P 500 Index.

That queasy feeling is caused by volatility, which we discussed last week.

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Blame It on Sequestration

Friday, May 3rd, 2013

President Obama and the Federal Aviation Administration blamed recent flight delays on sequestration.  Now the Federal Reserve Board’s Open Market Committee is blaming sequestration for the poor performance of the U.S. economy.

Both claims are equally frivolous.

As The Wall Street Journal noted, “The FAA’s all-hands furloughs managed to convert a less than 4% FAA budget cut into a 10% air-traffic control cut that would delay 40% of flights. The 6,700 flights that the FAA threatened to force off schedule every day is twice as many delays as the single worst travel day of 2012.”

With members of Congress among those affected by the flight delays, Congress acted with uncharacteristic quickness and approved a bill to revoke FAA’s politically motivated furloughs.

(more…)