A major mystery for me this summer has been the strange levitation of the stock market, despite an endless list of reasons for it to get crushed. Not only does the market have to contend with a shrinking money supply, a failing financial system, crumbling European bailouts and an inept Federal Reserve, but it also seems that the entire galaxy is aligned against it. For more on the Hindenburg Omen, click here: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
By now, the market should have begun its catatrophic descent. Why hasn't it? My guess is that all the hot air coming out of politician's yaps, coupled with the aggressive market support employed by the Federal Reserve and Helicopter Ben, has temporarily put a delay on what I still contend is inevitable. The best efforts of the Fed will not work. Here's why: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
Today's trading witnessed a very Hindenburg-like day. According to Yahoo Finance, there were 136 new highs and 164 new lows among nearly 4,000 issues traded. That would provide the initial trigger for the Hindenburg. As noted in prior pieces, there are a myriad of filters, but honestly, one needs no filter other than a gas mask to see that the "House Of Cards", known as the U.S. Financial System is on the verge of collapse.
But that's not all. Nearly every asset market has gotten incredibly and feverishly over-extended, including precious metals and mining stocks. We have discussed other technical indicators which are also very ominous, and those are discussed here: http://markostake.blogspot.com/2010/09/lets-get-technical.html, and http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
Add to that the rising inflation pressure showing up in prices at WalMart and other retail stores, plus in today's report on the Producer Price Index. Creeping inflation will put a cap on the Fed's ability to perform it's levitation tricks or a full blown hyper-inflation episode will ensue even sooner. It, too, is inevitable, once monetary velocity picks up.
So, what's an investor to do? Go To Cash! The only investments likely to survive this assault will be the very oversold U.S. Dollar and very short-term Treasuries. Yeah, the returns suck, but even 0% is better than losing 20% or more in a fairly short period of time.
Unlike the meltdown of 2008, which, too, was forsaged by a series of Hindenburg Omens, this one will not be an exact repeat. This time, Gold, Silver, Commodities and precious metals mining stocks ought to hold up much better. A correction to their 200 Day Moving Averages would be the most likely scenario, as discussed in this recent "Marko's Take": http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html.
Better to wait for another entry point, well below current levels, than to sweat it out in a volatility spike down that may just give you a heart attack. And, the bargains that will become available will be well worth waiting for.
So, how long may stocks go? Obviously, no one knows, but a Dow Jones Industrial Average of between 6,000 and 8,000 would seem to be a logical target occuring early in 2011.
It's going to be a very, very cold winter for most investors. Store lots of blankets!
Marko's Take
Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts
Tuesday, November 16, 2010
Tuesday, September 14, 2010
Gold 2K
Is on its way! With this morning's definitive breakout above the $1,270 per ounce level combined with Silver's vault above $20 per ounce, we can clearly view the entire precious metals complex as having reached a very low-risk entry point. The Gold Bugs Index (HUI) now needs to confirm this move by decisively breaking 500.
Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal. A very reasonable target for Gold itself would be on the order of $2,000 per ounce. If this is realized, the HUI could see a fairly quick doubling to 1000.
The HUI has historically traded at around one-half the metal itself. At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000.
The greatest opportunities, however, are among the quiet junior sector. Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.
Of course, you can expect the powers that be to attempt to manage the market lower. This will fail. You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners. They will be wrong. Jon, still looking for $800 per ounce?
Bubbles are NEVER supported by fundamentals. But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.
You can also expect a boom in mergers and acquisitions. Resource rich but cash poor juniors will be bid up quickly. With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage.
The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally. Look for the Dollar to plumb new lows. Look for virtually all currencies to lose value against tangibles,
As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality". Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!
As bullish as the situation is for Gold, the prospects for Silver are even better. Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory. For Silver to become fairly valued on a relative basis, it would have to double TODAY! If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.
The fundamental picture gets better. Production in former powerhouses like South Africa is falling rapidly. In fact, we appear to be past "Peak Gold". So, we have the combination of falling supply AND rising demand.
It still gets better. It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks. In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger. Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient. Can't show a fever, now can we?
Unlike Y2K, Gold 2K will NOT be a bust. Get your first class seats for the ride of your life! Your financial survival depends on it.
Marko's Take
Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal. A very reasonable target for Gold itself would be on the order of $2,000 per ounce. If this is realized, the HUI could see a fairly quick doubling to 1000.
The HUI has historically traded at around one-half the metal itself. At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000.
The greatest opportunities, however, are among the quiet junior sector. Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.
Of course, you can expect the powers that be to attempt to manage the market lower. This will fail. You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners. They will be wrong. Jon, still looking for $800 per ounce?
Bubbles are NEVER supported by fundamentals. But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.
You can also expect a boom in mergers and acquisitions. Resource rich but cash poor juniors will be bid up quickly. With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage.
The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally. Look for the Dollar to plumb new lows. Look for virtually all currencies to lose value against tangibles,
As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality". Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!
As bullish as the situation is for Gold, the prospects for Silver are even better. Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory. For Silver to become fairly valued on a relative basis, it would have to double TODAY! If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.
The fundamental picture gets better. Production in former powerhouses like South Africa is falling rapidly. In fact, we appear to be past "Peak Gold". So, we have the combination of falling supply AND rising demand.
It still gets better. It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks. In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger. Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient. Can't show a fever, now can we?
Unlike Y2K, Gold 2K will NOT be a bust. Get your first class seats for the ride of your life! Your financial survival depends on it.
Marko's Take
Wednesday, August 11, 2010
Unusual Uncertainty Meets QE2
Ya gotta love them boys at the Federal Reserve (FED). Alan Greenspan gave us asset bubbles while warning about "irrational exuberance". Now, "Helicopter Ben" Bernanke gives us "unusual uncertainty" and "quantitative easing" (QE).
If you missed your class on QE, here's a crash course. It refers to a series of extraordinary measures that the FED is prepared to undertake to stimulate the economy. Bernanke earned his nickname by saying that the FED was prepared to throw money out of helicopters if that's what it took.
If the FED has been trying to inject liquidity into the system, they've done one helluva lousy job. The broadest measures of money supply, known as M2 and M3, are plunging at record rates. In fact, they are at Great Depression levels of reduction. Bernanke is an academic and a student of the Great Depression. Specifically, his interest has been to attempt to understand what went wrong. So, the helicopter plan was borne out of this knowledge, although clearly he was being figurative and not literal.
The dropping money supply, however, is probably not entirely Bernanke or the FED's fault. An uncontrollable variable, called "velocity", is providing a stiff headwind against the FED's efforts. Velocity is a measure of the rate at which money circulates. If everyone were to put their savings under the mattress, for example, velocity would be zero. On the other hand, if folks were to be engaging in a lot of transactions and borrowing to finance growth, velocity would be high.
Velocity is hard to control, since it's the result of trillions of personal decisions. It is a function of consumer and business confidence. Low confidence equals high risk aversion and no willingness to expand, therefore, low velocity.
It is believed that the FED will monetize its mortgage portfolio and use the proceeds to purchase long term U.S. Treasury Bonds. That will do absolutely NOTHING to increase velocity. In fact, interest rates are at generational lows already, and may go lower if the economic downturn intensifies as we expect. Japan, a decent analog, has sub 1% long term rates.
Using FED funds to purchase Treasury Bonds is nothing more than a monetization of the U.S. budget deficit, now running at $1.5 trillion per year.
Unfortunately, the FED is powerless. Yes, you read that right. The FED is virtually powerless. They can't reduce rates which are already near zero. Any policy moves like changing reserve requirements or Open Market Operations will have absolutely no effect in the current business climate. To be effective, the budget needs to be brought under control, jobs need to be created and confidence needs to be restored. However, none of those can happen as long as the FED is powerless to stimulate the economy. The very definition of a vicious cycle if I ever heard one.
We are facing an impending economic death sentence. The only remaining question is whether we die by lethal injection, electrocution or hanging.
Marko's Take
On Sunday August 22nd, I would like to invite any Southern California readers to join me for an event sponored by the California Wildlife Center, called "The "Wild Brunch: Fawntasia". For more information on this organization and to purchase tickets for the event, click here http://cwcthewildbrunch12.eventbrite.com/.
If you missed your class on QE, here's a crash course. It refers to a series of extraordinary measures that the FED is prepared to undertake to stimulate the economy. Bernanke earned his nickname by saying that the FED was prepared to throw money out of helicopters if that's what it took.
If the FED has been trying to inject liquidity into the system, they've done one helluva lousy job. The broadest measures of money supply, known as M2 and M3, are plunging at record rates. In fact, they are at Great Depression levels of reduction. Bernanke is an academic and a student of the Great Depression. Specifically, his interest has been to attempt to understand what went wrong. So, the helicopter plan was borne out of this knowledge, although clearly he was being figurative and not literal.
The dropping money supply, however, is probably not entirely Bernanke or the FED's fault. An uncontrollable variable, called "velocity", is providing a stiff headwind against the FED's efforts. Velocity is a measure of the rate at which money circulates. If everyone were to put their savings under the mattress, for example, velocity would be zero. On the other hand, if folks were to be engaging in a lot of transactions and borrowing to finance growth, velocity would be high.
Velocity is hard to control, since it's the result of trillions of personal decisions. It is a function of consumer and business confidence. Low confidence equals high risk aversion and no willingness to expand, therefore, low velocity.
It is believed that the FED will monetize its mortgage portfolio and use the proceeds to purchase long term U.S. Treasury Bonds. That will do absolutely NOTHING to increase velocity. In fact, interest rates are at generational lows already, and may go lower if the economic downturn intensifies as we expect. Japan, a decent analog, has sub 1% long term rates.
Using FED funds to purchase Treasury Bonds is nothing more than a monetization of the U.S. budget deficit, now running at $1.5 trillion per year.
Unfortunately, the FED is powerless. Yes, you read that right. The FED is virtually powerless. They can't reduce rates which are already near zero. Any policy moves like changing reserve requirements or Open Market Operations will have absolutely no effect in the current business climate. To be effective, the budget needs to be brought under control, jobs need to be created and confidence needs to be restored. However, none of those can happen as long as the FED is powerless to stimulate the economy. The very definition of a vicious cycle if I ever heard one.
We are facing an impending economic death sentence. The only remaining question is whether we die by lethal injection, electrocution or hanging.
Marko's Take
On Sunday August 22nd, I would like to invite any Southern California readers to join me for an event sponored by the California Wildlife Center, called "The "Wild Brunch: Fawntasia". For more information on this organization and to purchase tickets for the event, click here http://cwcthewildbrunch12.eventbrite.com/.
Wednesday, March 31, 2010
Yes, Virginia, There Is A Jobless Recovery
Every time economic statistics are released by an entity, other than the Bureau of Labor Statistics (BLS), we get a much better read on what's really going on. Private company Automatic Data Processing (ADP), a firm which handles payroll accounting for employers, released its employment report this morning and the results were dramatically at odds with the hype emanating from the White House.
Non-farm private employment decreased 23,000 from February to March on a seasonally-adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a decline of 24,000.
The March employment decline was the smallest since employment began falling in February of 2008. The lack of increase in employment from February to March is consistent with the pause in the decline of initial unemployment claims that occurred during the winter. I'm sure this is all the weather's fault (sarcasm intentional)!
The ADP survey covers only private-sector jobs, while the numbers produced by the BLS on non-farm employment, to be released Friday, includes government workers. The addition of workers for the 2010 census is expected to lift federal government payrolls. This makes any rise in employment suspicious, temporary and subject to substantial downward revision in the coming months after the census is completed.
The ADP number is very disappointing given the expectations of a 50,000 gain projected by economists in a Dow Jones Newswires survey. The change in employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a drop of 24,000.
Economists surveyed by Dow Jones expect the BLS will report that March payrolls jumped by 200,000 jobs, following a drop of 36,000 in February, when blizzards along the east coast cut into business hours and kept workers snowed in. Should this report disappoint, at least we'll know the weather was at fault (sarcasm intentional)!
Other economic data, released this morning, was a bit more positive, however.
Demand for manufactured goods rose by 0.6% in February, to a seasonally-adjusted $383.53 billion, the Commerce Department said. The increase is the 10th in the past 11 months. Orders in January rose 2.5%, revised up from a previously reported 1.7% increase.
U.S. consumer confidence rebounded in March from a sharp February drop. The Conference Board, a private research group, said this week that its index of consumer confidence increased to 52.5 in March, from 46.4 in February.
However, the index remains below its readings of December and January, as Americans remained concerned about jobs and, presumably, the weather!
Job losses since the beginning of the downturn in late 2007 have reached 8.4 million.
Regardless of the Friday BLS report, the more reliable private data continues to show that the "recovery" is a complete phantom. Given that the massive stimulus of the Federal Reserve's "quantitative easing" is now ceasing with the end of the first quarter, one can only wonder how bad the economy will get once the heroine needle of monetary juicing is removed or even curtailed.
Marko's Take
Some of our favorite sites: http://www.youtube.com/markostaketv, http://www.lemetropolecafe.com/, http://clivemaund.com/ and http://www.stockmavrick.com/.
Non-farm private employment decreased 23,000 from February to March on a seasonally-adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a decline of 24,000.
The March employment decline was the smallest since employment began falling in February of 2008. The lack of increase in employment from February to March is consistent with the pause in the decline of initial unemployment claims that occurred during the winter. I'm sure this is all the weather's fault (sarcasm intentional)!
The ADP survey covers only private-sector jobs, while the numbers produced by the BLS on non-farm employment, to be released Friday, includes government workers. The addition of workers for the 2010 census is expected to lift federal government payrolls. This makes any rise in employment suspicious, temporary and subject to substantial downward revision in the coming months after the census is completed.
The ADP number is very disappointing given the expectations of a 50,000 gain projected by economists in a Dow Jones Newswires survey. The change in employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a drop of 24,000.
Economists surveyed by Dow Jones expect the BLS will report that March payrolls jumped by 200,000 jobs, following a drop of 36,000 in February, when blizzards along the east coast cut into business hours and kept workers snowed in. Should this report disappoint, at least we'll know the weather was at fault (sarcasm intentional)!
Other economic data, released this morning, was a bit more positive, however.
Demand for manufactured goods rose by 0.6% in February, to a seasonally-adjusted $383.53 billion, the Commerce Department said. The increase is the 10th in the past 11 months. Orders in January rose 2.5%, revised up from a previously reported 1.7% increase.
U.S. consumer confidence rebounded in March from a sharp February drop. The Conference Board, a private research group, said this week that its index of consumer confidence increased to 52.5 in March, from 46.4 in February.
However, the index remains below its readings of December and January, as Americans remained concerned about jobs and, presumably, the weather!
Job losses since the beginning of the downturn in late 2007 have reached 8.4 million.
Regardless of the Friday BLS report, the more reliable private data continues to show that the "recovery" is a complete phantom. Given that the massive stimulus of the Federal Reserve's "quantitative easing" is now ceasing with the end of the first quarter, one can only wonder how bad the economy will get once the heroine needle of monetary juicing is removed or even curtailed.
Marko's Take
Some of our favorite sites: http://www.youtube.com/markostaketv, http://www.lemetropolecafe.com/, http://clivemaund.com/ and http://www.stockmavrick.com/.
Sunday, March 28, 2010
Treasuries Having Harder Time Finding A Good Home
It was inevitable. You can't spray the world with an endless supply of something and not expect an adverse price effect. The U.S. has been living on borrowed time, but now our bonds are looking square in the eye of the "Grim Reefer". Country after country has either drastically curtailed buying our debt, stopped buying our debt altogether, or is looking for ways to offload it on someone else.
It's utterly amazing that nothing has happened... yet! Now, the over-supply is creating a saturation in the market place, whose consequences have yet to be felt. Another week, another financial problem. That's what happens in a BEAR market: whatever CAN go wrong, WILL go wrong!
For more than a year, analysts have been warning that record-sized debt sales by the U.S Treasury were utterly inconsistent with a 10-year yield below 4%. This past week, the yield on 10-year notes jumped from 3.65% to as high as 3.92% on Thursday. On Friday, it was 3.87%.
Tame "reported" inflation, rising unemployment, the housing market slump, the Federal Reserve’s policy of a virtually zero Fed Funds rate and its purchase of up to $1.7 trillion in bonds have all helped keep Treasury yields near historic lows.
But, this week the mood sharply deteriorated as yields for $118 billion of newly-issued U.S. debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the U.K. bond market after the government’s proposed budget failed to resolve doubts over future spending and debt reduction.
It hasn’t helped that the U.S. announced a big overhaul of its healthcare system this month, adding to worries about the scale of U.S. spending. Thank you Obamacare! (sarcasm intentional!)
Also un-nerving U.S. investors this week was a report by the Congressional Budget Office that falling payroll taxes, resulting from high unemployment, means that Social Security will pay out more in benefits than it receives for this fiscal year.
“A sustained rise in yields is upon us and bond funds will start to incur losses,” says Jim Caron, Global Head Of Interest Rate Strategy at Morgan Stanley. He expects 10-year yields to reach 4.5% in the second quarter, as investors pull their money from bond funds. March looms as the first month for negative returns for investors in Treasuries this year. Year-to-date, Treasuries have returned a scant 0.7% and threaten to slip into negative territory.
The 10-year note’s yield rose 15 basis points, or 0.15% , to 3.85%, according to BGCantor Market Data. The price of the 3.625% note due in February 2020 fell $12.19 per $1,000 face amount.
The increase in the yield was the biggest since an advance of 0.27% for the week that ended Dec. 25. The yield touched 3.92% on March 25, the highest level since June 11. The two-year note’s yield rose 0.05% to 1.04% and reached 1.12% this week, the highest level since Jan. 4.
Unfortunately, the unsatiable appetite to fund America's bloated budget can only get worse. The world has had it with our fiscal irresponsibility and the era of low interest rates will become harder to sustain.
Marko's Take
For new readers, please visit us on YouTube at http://www.youtube.com/markostaketv. Our newest episode on the legality of the Personal Income Tax will be posted in the next two days.
It's utterly amazing that nothing has happened... yet! Now, the over-supply is creating a saturation in the market place, whose consequences have yet to be felt. Another week, another financial problem. That's what happens in a BEAR market: whatever CAN go wrong, WILL go wrong!
For more than a year, analysts have been warning that record-sized debt sales by the U.S Treasury were utterly inconsistent with a 10-year yield below 4%. This past week, the yield on 10-year notes jumped from 3.65% to as high as 3.92% on Thursday. On Friday, it was 3.87%.
Tame "reported" inflation, rising unemployment, the housing market slump, the Federal Reserve’s policy of a virtually zero Fed Funds rate and its purchase of up to $1.7 trillion in bonds have all helped keep Treasury yields near historic lows.
But, this week the mood sharply deteriorated as yields for $118 billion of newly-issued U.S. debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the U.K. bond market after the government’s proposed budget failed to resolve doubts over future spending and debt reduction.
It hasn’t helped that the U.S. announced a big overhaul of its healthcare system this month, adding to worries about the scale of U.S. spending. Thank you Obamacare! (sarcasm intentional!)
Also un-nerving U.S. investors this week was a report by the Congressional Budget Office that falling payroll taxes, resulting from high unemployment, means that Social Security will pay out more in benefits than it receives for this fiscal year.
“A sustained rise in yields is upon us and bond funds will start to incur losses,” says Jim Caron, Global Head Of Interest Rate Strategy at Morgan Stanley. He expects 10-year yields to reach 4.5% in the second quarter, as investors pull their money from bond funds. March looms as the first month for negative returns for investors in Treasuries this year. Year-to-date, Treasuries have returned a scant 0.7% and threaten to slip into negative territory.
The 10-year note’s yield rose 15 basis points, or 0.15% , to 3.85%, according to BGCantor Market Data. The price of the 3.625% note due in February 2020 fell $12.19 per $1,000 face amount.
The increase in the yield was the biggest since an advance of 0.27% for the week that ended Dec. 25. The yield touched 3.92% on March 25, the highest level since June 11. The two-year note’s yield rose 0.05% to 1.04% and reached 1.12% this week, the highest level since Jan. 4.
Unfortunately, the unsatiable appetite to fund America's bloated budget can only get worse. The world has had it with our fiscal irresponsibility and the era of low interest rates will become harder to sustain.
Marko's Take
For new readers, please visit us on YouTube at http://www.youtube.com/markostaketv. Our newest episode on the legality of the Personal Income Tax will be posted in the next two days.
Wednesday, March 10, 2010
FED Speaketh With Forked Tongue
While declaring its allegiance to transparency, no other institution in modern history has ever said so many things to so many people so many times - yet said absolutely NOTHING!
The famous practioner of "FED-Double-Speak" was none other than the "Maestro" Alan Greenspan. The man had the ability to deliberate on a "yes" or "no" question in 30 minutes without every even giving an answer. Mr. Greenspan was so well-versed at non-answers, that during routine Q and A sessions in the House and Senate, congress-people routinely nodded off.
Lately, various FED spokespeople have begun the process of telegraphing future interest rate policy, which until recently, they have been hesitant to do. But on Monday, one of their chief lieutenants, the man charged with implementing FED policy, offered a pretty clear take on the likely timing of a move up in interest rates. The official, New York FED Markets Group chief Brian Sack, who has no formal role in setting monetary policy, suggested in a speech some sort of rate tightening will occur by late year.
“The current configuration of yields and asset prices incorporates expectations that short-term interest rates will begin to rise around the end of this year,” Sack told a group of economists in Virginia. “The markets seem prepared for the risks toward tighter policy,” he said, adding a “decent-sized term premium” on longer-dated yields suggests low chances of a “sizable upward shift in yields" when that tightening comes.
Sack’s speech also provided a road map for the monetary stimulus unwind. He envisions the FED removing reserves on a temporary basis, then raising rates, while allowing the $1.7 trillion in mortgage and Treasury assets it will have purchased by March to mature. Any active sales will come much later. Importantly, he said the actions will be taken by mid-year, lending additional support to the idea the FED can start easing rates up off 0% by year end.
Some Fed officials, like St. Louis FED President James Bullard, have implied that a rate increase may not come this year or next. On the other hand, New York FED President William Dudley, San Francisco FED President Janet Yellen and Dallas FED President Richard Fisher, have affirmed the need for low rates to be maintained for an extended period.
With so many voices saying different things, what conclusions can we draw?
First of all, any hint that interest rates may rise is premised on the notion that an economic recovery of substance is underway and gathering momentum. It isn't! In fact, the FED's ability to predict economic cycles is laughable at best. As the second-dip of the Double-Dip Depression takes hold, it will absolutely constrain any desire to raise rates.
Second, even IF the FED were to gradually raise interest rates, inflation will accelerate thereby keeping the FED "behind the curve". Undoubtedly, any increase in interest rates is likely to be substantially less than 1%, while it is virtually certain that the rate of inflation will increase MORE than 1% and probably MUCH more! As a result, the "real" interest rate will continue to become more negative and any increase in rates will be completely illusory.
Ultimately, the MARKET and not the FED will set interest rates. At the prevailing absurdly low interest rate structure, the only buyers of substance, such as Japan and China, have curtailed purchases.
The FED's utter mismanagement of monetary policy, coupled with its propensity to create asset bubble upon asset bubble, has put it and the U.S. Economy in a most unfortunate situation.
Marko's Take
For more background on the FED, how it works and what its mission is, click here (http://www.youtube.com/markostaketv#p/u/0/JiGA8XeZbUo).
The famous practioner of "FED-Double-Speak" was none other than the "Maestro" Alan Greenspan. The man had the ability to deliberate on a "yes" or "no" question in 30 minutes without every even giving an answer. Mr. Greenspan was so well-versed at non-answers, that during routine Q and A sessions in the House and Senate, congress-people routinely nodded off.
Lately, various FED spokespeople have begun the process of telegraphing future interest rate policy, which until recently, they have been hesitant to do. But on Monday, one of their chief lieutenants, the man charged with implementing FED policy, offered a pretty clear take on the likely timing of a move up in interest rates. The official, New York FED Markets Group chief Brian Sack, who has no formal role in setting monetary policy, suggested in a speech some sort of rate tightening will occur by late year.
“The current configuration of yields and asset prices incorporates expectations that short-term interest rates will begin to rise around the end of this year,” Sack told a group of economists in Virginia. “The markets seem prepared for the risks toward tighter policy,” he said, adding a “decent-sized term premium” on longer-dated yields suggests low chances of a “sizable upward shift in yields" when that tightening comes.
Sack’s speech also provided a road map for the monetary stimulus unwind. He envisions the FED removing reserves on a temporary basis, then raising rates, while allowing the $1.7 trillion in mortgage and Treasury assets it will have purchased by March to mature. Any active sales will come much later. Importantly, he said the actions will be taken by mid-year, lending additional support to the idea the FED can start easing rates up off 0% by year end.
Some Fed officials, like St. Louis FED President James Bullard, have implied that a rate increase may not come this year or next. On the other hand, New York FED President William Dudley, San Francisco FED President Janet Yellen and Dallas FED President Richard Fisher, have affirmed the need for low rates to be maintained for an extended period.
With so many voices saying different things, what conclusions can we draw?
First of all, any hint that interest rates may rise is premised on the notion that an economic recovery of substance is underway and gathering momentum. It isn't! In fact, the FED's ability to predict economic cycles is laughable at best. As the second-dip of the Double-Dip Depression takes hold, it will absolutely constrain any desire to raise rates.
Second, even IF the FED were to gradually raise interest rates, inflation will accelerate thereby keeping the FED "behind the curve". Undoubtedly, any increase in interest rates is likely to be substantially less than 1%, while it is virtually certain that the rate of inflation will increase MORE than 1% and probably MUCH more! As a result, the "real" interest rate will continue to become more negative and any increase in rates will be completely illusory.
Ultimately, the MARKET and not the FED will set interest rates. At the prevailing absurdly low interest rate structure, the only buyers of substance, such as Japan and China, have curtailed purchases.
The FED's utter mismanagement of monetary policy, coupled with its propensity to create asset bubble upon asset bubble, has put it and the U.S. Economy in a most unfortunate situation.
Marko's Take
For more background on the FED, how it works and what its mission is, click here (http://www.youtube.com/markostaketv#p/u/0/JiGA8XeZbUo).
Tuesday, March 9, 2010
Why Is The Federal Reserve So Frightened Of An Audit?
Despite overwhelming bi-partisan support, the Federal Reserve (FED) continues to fight an audit "tooth and nail".
For some background on the FED you can watch the latest episode of our YouTube series (http://www.youtube.com/markostaketv#p/u/0/JiGA8XeZbUo).
It's not too hard to speculate as to why... maybe they have something to hide? Maybe they've got a HELLUVA LOT to hide!
According to an article in the Huffington Post, which has been covering the ongoing battle to force an audit, the Treasury Department is vehemently opposed to a House-passed measure that would open the Federal Reserve (FED) to an audit by the Government Accountability Office (GAO), a senior Treasury official said yesterday. The House version has more than 300 co-sponsors.
Instead, the official said the Treasury prefers a preposterously watered-down substitute offered by Rep. Mel Watt and would like to see it enacted as part of the Senate bill.
Watt, a Democrat from North Carolina, has introduced an amendment intended as an alternative to the measure to audit the Federal Reserve introduced by Reps. Ron Paul (R-Texas) and Alan Grayson's (D-Fla.) . But instead of increasing transparency, as the amendment claims to do, Watt's measure would instead make the institution more opaque.
Under the "Watt Amendment, an auditor could not look at loans or liquidity arrangements the FED enters into, the terms of those arrangements, or the effect of those loans and other liquidity deals on "reserves, the balance sheet or financial condition of a Federal reserve bank or the Federal Reserve System."
I guess the FED, like Garth Brooks, has friends in LOW PLACES!
Asked whether he supports the House-passed measure to open the FED to an audit, which was co-sponsored by Reps. Grayson and Paul, a senior Treasury official stated he is intensely opposed to it.
The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. Ironically, the FED is much better at CREATING crises than solving them! He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.
Love the FED? Hate the FED? TAKE ME ON!
Marko's Take
For some background on the FED you can watch the latest episode of our YouTube series (http://www.youtube.com/markostaketv#p/u/0/JiGA8XeZbUo).
It's not too hard to speculate as to why... maybe they have something to hide? Maybe they've got a HELLUVA LOT to hide!
According to an article in the Huffington Post, which has been covering the ongoing battle to force an audit, the Treasury Department is vehemently opposed to a House-passed measure that would open the Federal Reserve (FED) to an audit by the Government Accountability Office (GAO), a senior Treasury official said yesterday. The House version has more than 300 co-sponsors.
Instead, the official said the Treasury prefers a preposterously watered-down substitute offered by Rep. Mel Watt and would like to see it enacted as part of the Senate bill.
Watt, a Democrat from North Carolina, has introduced an amendment intended as an alternative to the measure to audit the Federal Reserve introduced by Reps. Ron Paul (R-Texas) and Alan Grayson's (D-Fla.) . But instead of increasing transparency, as the amendment claims to do, Watt's measure would instead make the institution more opaque.
Under the "Watt Amendment, an auditor could not look at loans or liquidity arrangements the FED enters into, the terms of those arrangements, or the effect of those loans and other liquidity deals on "reserves, the balance sheet or financial condition of a Federal reserve bank or the Federal Reserve System."
I guess the FED, like Garth Brooks, has friends in LOW PLACES!
Asked whether he supports the House-passed measure to open the FED to an audit, which was co-sponsored by Reps. Grayson and Paul, a senior Treasury official stated he is intensely opposed to it.
The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. Ironically, the FED is much better at CREATING crises than solving them! He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.
Love the FED? Hate the FED? TAKE ME ON!
Marko's Take
Friday, February 26, 2010
Government Sachs: How Big A Menace Is It?
Goldman Sachs (GS) is the firm that everyone LOVES to HATE and for good reason. Not only does this firm bear unreasonable power in the world financial structure, it is so intertwined with the U.S. Government, that the term "Government Sachs" has now emerged in our lexicon.
To be fair, GS is the premiere investment banking firm. But, to be honest, did they achieve that position fairly? Marko's Take says NO!
Most obviously is the revolving door between high level GS executives and high level government posts. A partial list includes the following: Rahm Emanuel, Jon Corzine, Hank Paulson, Tim Geithner, Neil Kashkari, key Treasury players Dan Jester, Steve Shafran, Edward C. Forst, and Robert K. Steel. The list goes on and on.
The conflict of interest is OBVIOUS and very ominous.
But, the conflicts don't stop there. A senior Goldman Sachs executive sent an e-mail message to clients recently disclosing that the firm’s Fundamental Strategies Group might have shared investment ideas with the firm’s proprietary trading group, or some clients before sharing them with others.
The e-mail message, obtained by DealBook, demonstrates the various conflicts that Goldman and other firms face in balancing the interests of its various clients and its own trading operation.
“We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” Thomas Mazarakis, head of Goldman’s Fundamental Strategies Group, wrote (http://dealbook.blogs.nytimes.com/2010/01/12/goldman-executive-discloses-conflicts-policy/).
Marko's Take? What a great bunch of guys!
GS is also believed to be one of, if not, THE CONTROLLING OWNER of the FED!
Still not enough? A highly secretive entity, known as the "Plunge Protection Team" (PPT), is also believed to be directed by GS. The Working Group on Financial Markets, known colloquially as the PPT, was created in 1988 by Ronald Reagan, in response to the Black Monday stock market crash in 1987. Their operations have always been shrouded in secrecy, with a Washington Post article from 1997 writing that the group aims to prevent the "smoothly running global financial machine" from locking up.
If GS in indeed involved in market operations, that would explain the firm's enormous profitability which emanates primarily from its trading book, not lending as its bank mandate would suggest. Nothing like having a little inside information, trading ahead of clients and minting money through the FED (sarcasm intentional)! Nothing like having all your executives get cushy government jobs when they get tired of $50 million bonuses (sarcasm intentional)!
Until the FED's, Goldman's and the Treasury's surreptitious activities are disclosed, reviewed and audited will we know the real truth. However, the circumstantial evidence is quite damning. Marko's Take? Let's put these folks under the microscope and, if necessary, CLEAN HOUSE!
Think I'm being unfair to big ole Goldman Sachs? TAKE ME ON!
Marko's Take
Please visit our new YouTube site at http://www.youtube.com/markostaketv. We have a total of 8 episodes planned with a new segment, "What Exactly Is Peak Oil?... Part 2", to be released shortly.
Keep the faith...the revolution has begun and we WILL take the country back!
To be fair, GS is the premiere investment banking firm. But, to be honest, did they achieve that position fairly? Marko's Take says NO!
Most obviously is the revolving door between high level GS executives and high level government posts. A partial list includes the following: Rahm Emanuel, Jon Corzine, Hank Paulson, Tim Geithner, Neil Kashkari, key Treasury players Dan Jester, Steve Shafran, Edward C. Forst, and Robert K. Steel. The list goes on and on.
The conflict of interest is OBVIOUS and very ominous.
But, the conflicts don't stop there. A senior Goldman Sachs executive sent an e-mail message to clients recently disclosing that the firm’s Fundamental Strategies Group might have shared investment ideas with the firm’s proprietary trading group, or some clients before sharing them with others.
The e-mail message, obtained by DealBook, demonstrates the various conflicts that Goldman and other firms face in balancing the interests of its various clients and its own trading operation.
“We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” Thomas Mazarakis, head of Goldman’s Fundamental Strategies Group, wrote (http://dealbook.blogs.nytimes.com/2010/01/12/goldman-executive-discloses-conflicts-policy/).
Marko's Take? What a great bunch of guys!
GS is also believed to be one of, if not, THE CONTROLLING OWNER of the FED!
Still not enough? A highly secretive entity, known as the "Plunge Protection Team" (PPT), is also believed to be directed by GS. The Working Group on Financial Markets, known colloquially as the PPT, was created in 1988 by Ronald Reagan, in response to the Black Monday stock market crash in 1987. Their operations have always been shrouded in secrecy, with a Washington Post article from 1997 writing that the group aims to prevent the "smoothly running global financial machine" from locking up.
If GS in indeed involved in market operations, that would explain the firm's enormous profitability which emanates primarily from its trading book, not lending as its bank mandate would suggest. Nothing like having a little inside information, trading ahead of clients and minting money through the FED (sarcasm intentional)! Nothing like having all your executives get cushy government jobs when they get tired of $50 million bonuses (sarcasm intentional)!
Until the FED's, Goldman's and the Treasury's surreptitious activities are disclosed, reviewed and audited will we know the real truth. However, the circumstantial evidence is quite damning. Marko's Take? Let's put these folks under the microscope and, if necessary, CLEAN HOUSE!
Think I'm being unfair to big ole Goldman Sachs? TAKE ME ON!
Marko's Take
Please visit our new YouTube site at http://www.youtube.com/markostaketv. We have a total of 8 episodes planned with a new segment, "What Exactly Is Peak Oil?... Part 2", to be released shortly.
Keep the faith...the revolution has begun and we WILL take the country back!
Wednesday, February 24, 2010
Banks Leading The Economy Off The Cliff!
It's awfully hard to like banks. Let's face it: they charge us absurd rates on credit cards, are unwilling to lend to even the best of credits and pay themselves ever so handsomely despite being at the forefront of the economic debacle known as 2008-2009. Leading bankers themselves are smug, out-of-touch with America and in cahoots with the Administration. It's hard not to want to see them fail miserably!
Unfortunately, we NEED healthy banks. We NEED good banks. No economy can prosper without a healthy financial sector. And sadly, we don't have one. In fact, the banking sector is quietly deteriorating further despite all the machinations of the Federal Reserve (FED). The trend is downright alarming AND ominous!
The number of problem banks in the US continued to soar in last year’s fourth quarter, hitting their highest level since 1993, according to a regulatory report released on Tuesday(http://www.ft.com/cms/s/0/334b89dc-2097-11df-9775-00144feab49a.html).
The findings by the Federal Deposit Insurance Corp. (FDIC) suggest that, although the US economy is on the mend, the financial industry, bedevilled by souring residential and commercial real estate loans, will take longer to recover.
The FDIC said 702 banks were considered troubled at the end of 2009, up from 552 three months earlier. Problem assets totalled $402.8 bilion in the final period, compared with $345.9 billion in the third quarter. By contrast, Lehman Brothers listed $639 billion in assets at the time of its bankruptcy filing in September 2008.
No longer confined to Wall Street, the financial crisis has cascaded over to regional and community banks that are feeling a disproportionate amount of the pain. “The great recession has very much become a Main Street problem,” said Richard Brown, the FDIC’s chief economist.
Loan losses jumped for the 12th consecutive quarter to total $53 billion, an increase of 37% over the year-ago period. On an annualized basis the rate of losses accounted for in the quarter was the highest in more than two decades.
Losses rose in all significant categories, including residential mortgage loans and credit card debt. One of the fastest growing categories for uncollectable debt was commercial real estate.
Bank lending, the lifeblood of the U.S. economy, is falling at a record pace. U.S. banks last year posted their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover (http://online.wsj.com/article/SB10001424052748704188104575083332005461558.html?mod=djemTEW_h).
While top-tier banks are recovering at a faster clip, the rest of the industry is still suffering, according to a quarterly report from the FDIC. Banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers.
Besides registering their biggest full-year decline in total loans outstanding in 67 years, U.S. banks set a number of grim milestones. According to the FDIC, the number of U.S. banks at risk of failing hit a 16-year high at 702. More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data has been collected! And the problems are expected to last through 2010!
The struggling U.S. banking industry remains a problem for policy makers eager for banks to lend again. Lawmakers on Capitol Hill and administration officials have pushed banks to lend, particularly in light of the billions in taxpayer aid injected into the financial industry over the past two years. Banking groups and their members counter that they're under pressure from regulators to be more prudent and that demand from struggling consumers and businesses isn't there.
Some small-business owners say they could expand if they could just get a loan. Nick Sachs, president of Homewatch CareGivers Cincinnati-Metro, says he's been asking banks for a loan of $150,000 to $250,000 since 2008. He says his home-health-care franchise could hire 20 to 30 aides and even one or two office assistants.
Most surveys suggest a combination of factors are at play. A January survey by the FED of senior loan officers showed banks have slowed their efforts to tighten lending standards, but have not backed off the more stringent loan terms they put in place over the past two years. The same report, however, also showed that demand for loans from businesses and consumers continues to fall.
Bankers, on the other hand, say creditworthy borrowers are hard to come by. Fifth Third Bancorp recently extended a $3.5 million line of credit to Chicago-based One Hope United after the state of Illinois, beset by a budget crisis, delayed payments to the child-and-family-services provider.
Clearly, we have a so-called "vicious circle" problem. The poor condition of borrowers coupled with the poor condition of the economy are making it tougher for banks to lend. The unwillingness of banks to lend, on the other hand, is contributing to the poor economy and resulting poor credit-worthiness of potential borrowers. Sadly, before anyone in Washington, D. C., figures this out, we'll be well on our way into the Second Dip of the Double-Dip Hyper-Inflationary Depression.
Disagree? Think I'm being unfair to Bankers? TAKE ME ON!
Marko's Take
Our second episode on You Tube is now up. You can see it by clicking here: http://www.youtube.com/markostaketv.com. Hope you like it! We will have episodes weekly for the forseeable future!
Unfortunately, we NEED healthy banks. We NEED good banks. No economy can prosper without a healthy financial sector. And sadly, we don't have one. In fact, the banking sector is quietly deteriorating further despite all the machinations of the Federal Reserve (FED). The trend is downright alarming AND ominous!
The number of problem banks in the US continued to soar in last year’s fourth quarter, hitting their highest level since 1993, according to a regulatory report released on Tuesday(http://www.ft.com/cms/s/0/334b89dc-2097-11df-9775-00144feab49a.html).
The findings by the Federal Deposit Insurance Corp. (FDIC) suggest that, although the US economy is on the mend, the financial industry, bedevilled by souring residential and commercial real estate loans, will take longer to recover.
The FDIC said 702 banks were considered troubled at the end of 2009, up from 552 three months earlier. Problem assets totalled $402.8 bilion in the final period, compared with $345.9 billion in the third quarter. By contrast, Lehman Brothers listed $639 billion in assets at the time of its bankruptcy filing in September 2008.
No longer confined to Wall Street, the financial crisis has cascaded over to regional and community banks that are feeling a disproportionate amount of the pain. “The great recession has very much become a Main Street problem,” said Richard Brown, the FDIC’s chief economist.
Loan losses jumped for the 12th consecutive quarter to total $53 billion, an increase of 37% over the year-ago period. On an annualized basis the rate of losses accounted for in the quarter was the highest in more than two decades.
Losses rose in all significant categories, including residential mortgage loans and credit card debt. One of the fastest growing categories for uncollectable debt was commercial real estate.
Bank lending, the lifeblood of the U.S. economy, is falling at a record pace. U.S. banks last year posted their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover (http://online.wsj.com/article/SB10001424052748704188104575083332005461558.html?mod=djemTEW_h).
While top-tier banks are recovering at a faster clip, the rest of the industry is still suffering, according to a quarterly report from the FDIC. Banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers.
Besides registering their biggest full-year decline in total loans outstanding in 67 years, U.S. banks set a number of grim milestones. According to the FDIC, the number of U.S. banks at risk of failing hit a 16-year high at 702. More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data has been collected! And the problems are expected to last through 2010!
The struggling U.S. banking industry remains a problem for policy makers eager for banks to lend again. Lawmakers on Capitol Hill and administration officials have pushed banks to lend, particularly in light of the billions in taxpayer aid injected into the financial industry over the past two years. Banking groups and their members counter that they're under pressure from regulators to be more prudent and that demand from struggling consumers and businesses isn't there.
Some small-business owners say they could expand if they could just get a loan. Nick Sachs, president of Homewatch CareGivers Cincinnati-Metro, says he's been asking banks for a loan of $150,000 to $250,000 since 2008. He says his home-health-care franchise could hire 20 to 30 aides and even one or two office assistants.
Most surveys suggest a combination of factors are at play. A January survey by the FED of senior loan officers showed banks have slowed their efforts to tighten lending standards, but have not backed off the more stringent loan terms they put in place over the past two years. The same report, however, also showed that demand for loans from businesses and consumers continues to fall.
Bankers, on the other hand, say creditworthy borrowers are hard to come by. Fifth Third Bancorp recently extended a $3.5 million line of credit to Chicago-based One Hope United after the state of Illinois, beset by a budget crisis, delayed payments to the child-and-family-services provider.
Clearly, we have a so-called "vicious circle" problem. The poor condition of borrowers coupled with the poor condition of the economy are making it tougher for banks to lend. The unwillingness of banks to lend, on the other hand, is contributing to the poor economy and resulting poor credit-worthiness of potential borrowers. Sadly, before anyone in Washington, D. C., figures this out, we'll be well on our way into the Second Dip of the Double-Dip Hyper-Inflationary Depression.
Disagree? Think I'm being unfair to Bankers? TAKE ME ON!
Marko's Take
Our second episode on You Tube is now up. You can see it by clicking here: http://www.youtube.com/markostaketv.com. Hope you like it! We will have episodes weekly for the forseeable future!
Friday, February 19, 2010
Fed Raises Rates... Or Did They?
In a move that had already been well telegraphed, the Federal Reserve (FED) raised the discount rate from .50% to .75%. Is this the beginning of a new tightening cycle? NO! What readers of "Marko's Take" already know is that any major upward move in rates is not in the cards for 2010.
Reason 1 is the size of the National Debt, which had its ceiling recently raised by Congress to in excess of $14 Trillion! A 1% increase in rates translates into an additonal $140 billion per year increase in our budget deficit! Reason 2 is that the economy is NOT in a recovery, but slipping into the second dip of this "Double Dip Hyper-Inflationary Depression". Any material increase in rates is just not going to happen.
Furthermore, for any "tightening" to occur, the FED must raise rates FASTER than the increase in inflation. The "real" interest rate is defined as the prevailing interest rate MINUS the ongoing inflation rate. Historically, real rates have been slightly positive - about 2%. However, at the present, real rates are NEGATIVE and given the latest release in the Producer Price Index (PPI), a meager .25% increase in rates still keeps the FED way behind the curve.
Negative real rates were a FED policy blunder in the 1970's. The result was Stagflation and a mania in Gold. Fast forward to the 2010's and HISTORY WILL REPEAT!
The FED's move may also have been a token measure to appease China, which has been vocal in its displeasure with U.S. monetary policy and the debasement of the dollar.
Foreign owners of US government debt reduced their holdings by the largest monthly amount ever in December, with China offloading so many Treasury securities that it is no longer the largest foreign holder! Total foreign holdings of treasury securities plunged by $53 billion in December. China led the sell-off, reducing its holdings by $34 billion, while Japan increased its holdings by $11 billion to become the new largest foreign holder of Treasuries.
China has increased their holdings of U.S. Treasuries eight-fold over the past decade, so this latest dumping is relatively small in the grand scheme of things. It is newsworthy only in the fact that China is no longer the largest holder of Treasuries and this could be the beginning of a much larger trend to divest of U.S. debt.
The discount-rate move didn't affect the FED's main policy tool, the federal-funds rate, a FED-influenced rate that banks charge each other on overnight loans. That benchmark rate filters through to other market rates. The FED on Thursday reiterated the fed funds rate will remain near zero for an "extended period," which means at least a few more months.
So, while the FED has taken this rather minor move, the big picture remains unchanged. The FED is far more concerned about NOT derailing the incipient "recovery" it maintains is taking place. What recovery?
Love the FED? Hate the FED? TAKE ME ON!
Marko's Take
Please visit our new YouTube channel at http://youtube.com/markostaketv. We will have a schedule of upcoming episodes posted shortly.
Reason 1 is the size of the National Debt, which had its ceiling recently raised by Congress to in excess of $14 Trillion! A 1% increase in rates translates into an additonal $140 billion per year increase in our budget deficit! Reason 2 is that the economy is NOT in a recovery, but slipping into the second dip of this "Double Dip Hyper-Inflationary Depression". Any material increase in rates is just not going to happen.
Furthermore, for any "tightening" to occur, the FED must raise rates FASTER than the increase in inflation. The "real" interest rate is defined as the prevailing interest rate MINUS the ongoing inflation rate. Historically, real rates have been slightly positive - about 2%. However, at the present, real rates are NEGATIVE and given the latest release in the Producer Price Index (PPI), a meager .25% increase in rates still keeps the FED way behind the curve.
Negative real rates were a FED policy blunder in the 1970's. The result was Stagflation and a mania in Gold. Fast forward to the 2010's and HISTORY WILL REPEAT!
The FED's move may also have been a token measure to appease China, which has been vocal in its displeasure with U.S. monetary policy and the debasement of the dollar.
Foreign owners of US government debt reduced their holdings by the largest monthly amount ever in December, with China offloading so many Treasury securities that it is no longer the largest foreign holder! Total foreign holdings of treasury securities plunged by $53 billion in December. China led the sell-off, reducing its holdings by $34 billion, while Japan increased its holdings by $11 billion to become the new largest foreign holder of Treasuries.
China has increased their holdings of U.S. Treasuries eight-fold over the past decade, so this latest dumping is relatively small in the grand scheme of things. It is newsworthy only in the fact that China is no longer the largest holder of Treasuries and this could be the beginning of a much larger trend to divest of U.S. debt.
The discount-rate move didn't affect the FED's main policy tool, the federal-funds rate, a FED-influenced rate that banks charge each other on overnight loans. That benchmark rate filters through to other market rates. The FED on Thursday reiterated the fed funds rate will remain near zero for an "extended period," which means at least a few more months.
So, while the FED has taken this rather minor move, the big picture remains unchanged. The FED is far more concerned about NOT derailing the incipient "recovery" it maintains is taking place. What recovery?
Love the FED? Hate the FED? TAKE ME ON!
Marko's Take
Please visit our new YouTube channel at http://youtube.com/markostaketv. We will have a schedule of upcoming episodes posted shortly.
Saturday, February 13, 2010
Euro Now Leads Dollar In Race To Oblivion
On this side of the Atlantic, most thinking people understand that the Dollar is in "Deep Doo Doo", as George H. W. Bush might say. Yet, the Euro is even worse!
Bringing the deep-rooted problems of the Euro to the surface have been the recent developments in the so-called "PIGS" countries and their imploding sovereign debt (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html).
Germany has paid lip service to a potential bailout of Greece, but as of yet, no deal has been struck. It appears that a wait-and-see policy has been adopted in the hopes that a combination of public assurances that Greece will NOT be allowed to default, combined with the Greek government's rigid adherence to its austerity program, will be enough to stabilize the markets.
The financial stresses becoming more evident in Europe are being felt by the common denominator of the European Union (EU), the shared currency known as the Euro.
The "Dollar Index", which is a basket of currencies that the greenback is compared to, is heavily weighted by the Euro - nearly 60%. As a result, the Dollar and Euro tend to trade inversely. Thus, the recent "strength" in the Dollar is nothing more than the mirror image of the severe weakness in the Euro. The two currencies are BOTH in trouble, but the exchange rate is relative and at this time, the Euro is making a headlong sprint toward the "Finished" Line!
The Euro is currently worth $1.36 - down 10% since December 1, 2009. During the same period, the Dollar Index has gained roughly 8%. (In 2000, as the Euro was launched, it traded as low as about $.85 and then steadily climbed to its all-time high of $1.60 in July 2008).
Given the current trajectories of both the European and American economies, the final destruction of western currencies may be entering its terminal phase. Only a return to an asset-backed status, preferably Gold, can stop what appears to be inevitable. The only question is whether the Dollar or Euro reach "toilet paper" equivalency first!
History has shown just how dangerous even a single currency meltdown can become: The Russian Ruble, not a major currency in the least, triggered the 1998 financial panic which brought down the large hedge fund known as "Long-Term Capital Management", putting world stock markets into free-fall and requiring emergency action by the Federal Reserve.
Can you imagine what would happen if BOTH the Dollar AND Euro imploded?
If you either think I'm missing something or want to put your 2 cents in, while your 2 cents are still worth 2 cents, you know what to do. TAKE ME ON!
Marko's Take
Bringing the deep-rooted problems of the Euro to the surface have been the recent developments in the so-called "PIGS" countries and their imploding sovereign debt (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html).
Germany has paid lip service to a potential bailout of Greece, but as of yet, no deal has been struck. It appears that a wait-and-see policy has been adopted in the hopes that a combination of public assurances that Greece will NOT be allowed to default, combined with the Greek government's rigid adherence to its austerity program, will be enough to stabilize the markets.
The financial stresses becoming more evident in Europe are being felt by the common denominator of the European Union (EU), the shared currency known as the Euro.
The "Dollar Index", which is a basket of currencies that the greenback is compared to, is heavily weighted by the Euro - nearly 60%. As a result, the Dollar and Euro tend to trade inversely. Thus, the recent "strength" in the Dollar is nothing more than the mirror image of the severe weakness in the Euro. The two currencies are BOTH in trouble, but the exchange rate is relative and at this time, the Euro is making a headlong sprint toward the "Finished" Line!
The Euro is currently worth $1.36 - down 10% since December 1, 2009. During the same period, the Dollar Index has gained roughly 8%. (In 2000, as the Euro was launched, it traded as low as about $.85 and then steadily climbed to its all-time high of $1.60 in July 2008).
Given the current trajectories of both the European and American economies, the final destruction of western currencies may be entering its terminal phase. Only a return to an asset-backed status, preferably Gold, can stop what appears to be inevitable. The only question is whether the Dollar or Euro reach "toilet paper" equivalency first!
History has shown just how dangerous even a single currency meltdown can become: The Russian Ruble, not a major currency in the least, triggered the 1998 financial panic which brought down the large hedge fund known as "Long-Term Capital Management", putting world stock markets into free-fall and requiring emergency action by the Federal Reserve.
Can you imagine what would happen if BOTH the Dollar AND Euro imploded?
If you either think I'm missing something or want to put your 2 cents in, while your 2 cents are still worth 2 cents, you know what to do. TAKE ME ON!
Marko's Take
Tuesday, January 26, 2010
Helicopter Ben Survives: The Implications
Reports now show that "Helicopter" Ben Bernanke will indeed survive and be appointed to a second-term.
The derisive term "Helicopter" refers to a statement the FED chairman once made when asked about the options available for preventing a systemic financial collapse. In the statement, Bernanke said that the FED could even go so far as to consider "throwing money out of Helicopters" to get cash into people's hands.
Clearly, the statement was somewhat tongue-in-cheek, as no one actually believes that The FED would resort to such an idiotic policy. However, the fact that Mr, Bernanke implied that he would go to extremes to get funds into consumers' hands is quite telling as to his modus operandi.
Bernanke, an academic, fancies himself a student of the "Great Depression" and believes that the lessons learned from the monetary mismanagement THEN can be applied to the situation TODAY to minimize the effects of the ongoing finacial calamity. Unfortunately, Mr. Bernanke is not a student of FED policy and efficacy from 1987 through the present.
His mentor, Alan Greenspan, employed a "low interest rate" policy which fed a series of asset bubbles only to followed by devastating crashes. The first bubble, the dot com boom and bust, popped in 2000 and was followed by an 80% drop in the Nasdaq - wiping out a class of investors, creating a slew of corporate bankrupties and setting the stage for a recession.
Mr. Bernanke should really take a look at his OWN role is this utterly absurd policy as he was highly responsible for bubble number two: the real estate bubble, which along with the derivatives mess led to a virual financial system collapse in 2008. Perhaps someone can buy him a book on recent Federal Reserve history!
In any event, it is HIGHLY unlikely that "Helicopter Ben" will make the connection between below-market interest rates and the subsequent mis-allocation of resources which leads to the bubbles in the first place.
Thank God Bernanke isn't a dentist. If he was one, he'd fill one cavity, only to "accidentally" cause two new cavities. "What, me worry?"
The FED and Mr. Bernanke are no more the solutions to what ails us, than a tanker full of gasoline would be in putting out a raging inferno!
Now, the stage is re-set for a continued and misguided policy of below-market interest rates which will lead to hyper-inflation and be followed by the inevitalbe second dip into Depression.
My trading recommendations made from last Sunday's blog remain unchanged. While much of it was premised on the possible replacement of Benanke with a Paul Volcker disciple, not all of it was. A good portion of my concern had to do with factors such as the conditions of the charts, historical precedent, 4th quarter earnings reports and many other factors too numerous to give each justice.
So, for now, stay with the program. I'll be watching daily and will alert you as to whether a mid-course correction needs to be considered.
If you're a Bernanke fan and wish to take exception, TAKE ME ON!
Marko's Take
The derisive term "Helicopter" refers to a statement the FED chairman once made when asked about the options available for preventing a systemic financial collapse. In the statement, Bernanke said that the FED could even go so far as to consider "throwing money out of Helicopters" to get cash into people's hands.
Clearly, the statement was somewhat tongue-in-cheek, as no one actually believes that The FED would resort to such an idiotic policy. However, the fact that Mr, Bernanke implied that he would go to extremes to get funds into consumers' hands is quite telling as to his modus operandi.
Bernanke, an academic, fancies himself a student of the "Great Depression" and believes that the lessons learned from the monetary mismanagement THEN can be applied to the situation TODAY to minimize the effects of the ongoing finacial calamity. Unfortunately, Mr. Bernanke is not a student of FED policy and efficacy from 1987 through the present.
His mentor, Alan Greenspan, employed a "low interest rate" policy which fed a series of asset bubbles only to followed by devastating crashes. The first bubble, the dot com boom and bust, popped in 2000 and was followed by an 80% drop in the Nasdaq - wiping out a class of investors, creating a slew of corporate bankrupties and setting the stage for a recession.
Mr. Bernanke should really take a look at his OWN role is this utterly absurd policy as he was highly responsible for bubble number two: the real estate bubble, which along with the derivatives mess led to a virual financial system collapse in 2008. Perhaps someone can buy him a book on recent Federal Reserve history!
In any event, it is HIGHLY unlikely that "Helicopter Ben" will make the connection between below-market interest rates and the subsequent mis-allocation of resources which leads to the bubbles in the first place.
Thank God Bernanke isn't a dentist. If he was one, he'd fill one cavity, only to "accidentally" cause two new cavities. "What, me worry?"
The FED and Mr. Bernanke are no more the solutions to what ails us, than a tanker full of gasoline would be in putting out a raging inferno!
Now, the stage is re-set for a continued and misguided policy of below-market interest rates which will lead to hyper-inflation and be followed by the inevitalbe second dip into Depression.
My trading recommendations made from last Sunday's blog remain unchanged. While much of it was premised on the possible replacement of Benanke with a Paul Volcker disciple, not all of it was. A good portion of my concern had to do with factors such as the conditions of the charts, historical precedent, 4th quarter earnings reports and many other factors too numerous to give each justice.
So, for now, stay with the program. I'll be watching daily and will alert you as to whether a mid-course correction needs to be considered.
If you're a Bernanke fan and wish to take exception, TAKE ME ON!
Marko's Take
Saturday, January 23, 2010
Obama's Big Swerve
Before we go into trading strategies, which I'll cover tomorrow, let's set the stage for the reasons as to why the sudden shift in tactics I urgently clammored for on Friday.
On Thursday, President Obama did something I would have thought previously unthinkable: he took on the Wall Street Boys Club! The President called for sweeping reforms by preventing "banks", such as Goldman Sachs, JPMorganChase, Bank of America and Citicorp from running their own proprietary trading desks, sponsoring hedge funds and private equity funds. This is big. The "banks" won't be able to make any money unless they do what banks are supposed to do... LEND!
In addition, the President further surprised this pundit by distancing himself from Time's Man of the Year and current head of the Federal Reserve, Ben Bernanke. Standing behind Obama was none other than the looming presence of Paul Volcker, who I maintain is THE BEST FED CHAIRMAN OF ALL TIME!
The significance of Volcker is NOT that he will replace Bernanke when his term expires. Rather, it is Volcker"s presence ALONE which indicates that he will have significant input into the next FED chairman and the policies it employs now believed to be Vice Chairman Don Kohn.
Regardless of President Obama's motivations for these two moves, Marko's Take is KUDOS!
Now, let's go back a bit in history as to make it clear why Volcker's presence is such a critical piece of information. Volcker was first appointed to the FED chair in 1979 by Jimmy Carter and continued for two terms into 1987, when he was replaced by Mr. Asset Bubble Sr., Alan Greenspan, aka the "Maestro".
Volcker gave the economy some tough medicine, which successors Greenspan and Bernanke were loathe to do. Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983. The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in '81 as well!
Needless to say, the stock market did NOT react well then and I expect it won't now. The Dow finally bottomed in 1982 before embarking on 20+ years of incredible wealth creation. Even more revealing is that once Volcker's measures began to take root, the Gold market was in its final mania phase. Gold topped in 1980 at $850 and went into a 20 year coma.
Therefore, as you may be gathering, we now have a game changer. I learned the hard way, while managing my own series of hedge funds, that getting wedded to a particular outlook is DANGEROUS. When one fails to acknowledge the significance of these sorts of events, one risks letting a cavity turn into a root canal.
The BEST loss is an early and QUICK loss. That way one can re-group, digest the information and proceed accordingly.
It is now believed that Bernanke's tenure is so tenuous that he may not even last until the next planned FED meeting next week, to be replaced by Kohn on an interim basis. Kohn's track record and views are not well known. However, if they are intended to reflect Volcker's desires, then frankly they don't matter.
Democrats on Friday could not wait to distance themselves from Bernanke. Defections included Barbara Boxer and Russ Feingold.
I don't know about you, but right now I feel pretty audacious! I have HOPE and you should, too, although the medicine will require a painful adjustment process. But without it, there was no doubt that we were cascading down a path for which there might become a point of no return.
Tomorrow, we'll discuss how to play "Obama's Big Swerve" in both the Stock and Gold Markets.
Disagree? TAKE ME ON!
Marko's Take
On Thursday, President Obama did something I would have thought previously unthinkable: he took on the Wall Street Boys Club! The President called for sweeping reforms by preventing "banks", such as Goldman Sachs, JPMorganChase, Bank of America and Citicorp from running their own proprietary trading desks, sponsoring hedge funds and private equity funds. This is big. The "banks" won't be able to make any money unless they do what banks are supposed to do... LEND!
In addition, the President further surprised this pundit by distancing himself from Time's Man of the Year and current head of the Federal Reserve, Ben Bernanke. Standing behind Obama was none other than the looming presence of Paul Volcker, who I maintain is THE BEST FED CHAIRMAN OF ALL TIME!
The significance of Volcker is NOT that he will replace Bernanke when his term expires. Rather, it is Volcker"s presence ALONE which indicates that he will have significant input into the next FED chairman and the policies it employs now believed to be Vice Chairman Don Kohn.
Regardless of President Obama's motivations for these two moves, Marko's Take is KUDOS!
Now, let's go back a bit in history as to make it clear why Volcker's presence is such a critical piece of information. Volcker was first appointed to the FED chair in 1979 by Jimmy Carter and continued for two terms into 1987, when he was replaced by Mr. Asset Bubble Sr., Alan Greenspan, aka the "Maestro".
Volcker gave the economy some tough medicine, which successors Greenspan and Bernanke were loathe to do. Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983. The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in '81 as well!
Needless to say, the stock market did NOT react well then and I expect it won't now. The Dow finally bottomed in 1982 before embarking on 20+ years of incredible wealth creation. Even more revealing is that once Volcker's measures began to take root, the Gold market was in its final mania phase. Gold topped in 1980 at $850 and went into a 20 year coma.
Therefore, as you may be gathering, we now have a game changer. I learned the hard way, while managing my own series of hedge funds, that getting wedded to a particular outlook is DANGEROUS. When one fails to acknowledge the significance of these sorts of events, one risks letting a cavity turn into a root canal.
The BEST loss is an early and QUICK loss. That way one can re-group, digest the information and proceed accordingly.
It is now believed that Bernanke's tenure is so tenuous that he may not even last until the next planned FED meeting next week, to be replaced by Kohn on an interim basis. Kohn's track record and views are not well known. However, if they are intended to reflect Volcker's desires, then frankly they don't matter.
Democrats on Friday could not wait to distance themselves from Bernanke. Defections included Barbara Boxer and Russ Feingold.
I don't know about you, but right now I feel pretty audacious! I have HOPE and you should, too, although the medicine will require a painful adjustment process. But without it, there was no doubt that we were cascading down a path for which there might become a point of no return.
Tomorrow, we'll discuss how to play "Obama's Big Swerve" in both the Stock and Gold Markets.
Disagree? TAKE ME ON!
Marko's Take
Wednesday, January 6, 2010
Have Any Interest In The Future Direction of Rates?
I do. And, I'll bet you do, too. Interest rates affect so many factors in our financial lives. They determine our compensation for saving, affect our willingness to take risk, cause or deter us from borrowing or lending and many, many other decisions.
Currently, interest rates are embarassingly low. For example, the 4-week Treasury Bill rate is a whopping .025%. But don't worry. If you only extend the maturity to 6 months, you'll receive a very generous 0.18%. See? No problem.
Now if you really have a strong stomach and can wait two years until your Treasury Note matures you can actually earn 1.09%. Still not satisfied? You can buy notes maturing in five years and get 2.65%. If that doesn't float your boat, you can buy 10-year notes and receive 3.85%. If that doesn't do it, you must be one major ingrate!
If you have the willingness to invest in Corporate Bonds, rated BAA by Moody's, you could receive 6.39%.
BAA is the lowest rating above "junk bonds", the type that default often. Great risk/return profile, eh?
It would seem that the only direction interest rates can go is up, but before you conclude that, read further.
The National Debt exceeds $12 trillion!! For every 1% across-the-board increase in rates, an additional $120 billion would be added to the budget deficit annually! I contend, therefore, that rates will continue ridiculously low for a long, long, time, despite Fed Chairman Bernanke's suggestions that rate hikes are "on the table". The very same man, who along with his predecessor Alan Greenspan, have succeeded in one thing only: creating asset bubble upon asset bubble only to attempt to cure the very bubbles they created with the identical medicine which CAUSED the bubbles... low interest rates. Ben Bernanke as "Time 's "Man of the Year" Great choice!
Tomorrow, we'll take a peek at "Peak Oil". If you don't know about "Peak Oil", I hope I have your interest piqued. See ya then.
Marko's Take
Currently, interest rates are embarassingly low. For example, the 4-week Treasury Bill rate is a whopping .025%. But don't worry. If you only extend the maturity to 6 months, you'll receive a very generous 0.18%. See? No problem.
Now if you really have a strong stomach and can wait two years until your Treasury Note matures you can actually earn 1.09%. Still not satisfied? You can buy notes maturing in five years and get 2.65%. If that doesn't float your boat, you can buy 10-year notes and receive 3.85%. If that doesn't do it, you must be one major ingrate!
If you have the willingness to invest in Corporate Bonds, rated BAA by Moody's, you could receive 6.39%.
BAA is the lowest rating above "junk bonds", the type that default often. Great risk/return profile, eh?
It would seem that the only direction interest rates can go is up, but before you conclude that, read further.
The National Debt exceeds $12 trillion!! For every 1% across-the-board increase in rates, an additional $120 billion would be added to the budget deficit annually! I contend, therefore, that rates will continue ridiculously low for a long, long, time, despite Fed Chairman Bernanke's suggestions that rate hikes are "on the table". The very same man, who along with his predecessor Alan Greenspan, have succeeded in one thing only: creating asset bubble upon asset bubble only to attempt to cure the very bubbles they created with the identical medicine which CAUSED the bubbles... low interest rates. Ben Bernanke as "Time 's "Man of the Year" Great choice!
Tomorrow, we'll take a peek at "Peak Oil". If you don't know about "Peak Oil", I hope I have your interest piqued. See ya then.
Marko's Take
Saturday, January 2, 2010
Why Does The Stock Market Act Like The Energizer Bunny?
It keeps going and going and going. And, not to the men's room!
Being serious, the stock market rally has me a tad puzzled for a variety of reasons which I'll outline.
A rally off the March lows was very expectable to something like 9,500, which would roughly be the midpoint of its all-time high of approximately 14,000 and recent low of 6,600. Yet, it has been recently flirting with 11,000, closed the year at 10,428 and change and seems poised to shoot higher still!
This has various market timers, especially those empolying an idiotic system known as the "Elliot Wave" in a complete snit and ready for the loonie bin, if they're not there already! I realize that most readers will not be familiar with the Elliott Wave, but it can be "googled" in Wikipedia. If you DO read about it, you'll realize how utterly complicated, ridiculous and unreliable it is!
According to the Wall St. Journal, the reason for the rise is the unprecedented stimulus and money creation by the Federal Reserve, Treasury and Obama Administration. According to Marko's Take, it is not. According to others, the stock market is anticipating a powerful economic recovery, especially by the talking heads at CNBC! Again, according to Marko's Take, it is not.
As you've gathered, my "thesis" is entirely different! I believe the ongoing rally is a combination of two factors: the severely needed bounce off the March lows and market manipulation by the troika consisting of the Federal Reserve, Treasury and Goldman Sachs. As to where it goes from here, I ain't got the vaguest!
Hope you had a most joyous New Year. Your's truly definitely did.
Tomorrow, we'll review the situation in real estate.
Marko's Take
Being serious, the stock market rally has me a tad puzzled for a variety of reasons which I'll outline.
A rally off the March lows was very expectable to something like 9,500, which would roughly be the midpoint of its all-time high of approximately 14,000 and recent low of 6,600. Yet, it has been recently flirting with 11,000, closed the year at 10,428 and change and seems poised to shoot higher still!
This has various market timers, especially those empolying an idiotic system known as the "Elliot Wave" in a complete snit and ready for the loonie bin, if they're not there already! I realize that most readers will not be familiar with the Elliott Wave, but it can be "googled" in Wikipedia. If you DO read about it, you'll realize how utterly complicated, ridiculous and unreliable it is!
According to the Wall St. Journal, the reason for the rise is the unprecedented stimulus and money creation by the Federal Reserve, Treasury and Obama Administration. According to Marko's Take, it is not. According to others, the stock market is anticipating a powerful economic recovery, especially by the talking heads at CNBC! Again, according to Marko's Take, it is not.
As you've gathered, my "thesis" is entirely different! I believe the ongoing rally is a combination of two factors: the severely needed bounce off the March lows and market manipulation by the troika consisting of the Federal Reserve, Treasury and Goldman Sachs. As to where it goes from here, I ain't got the vaguest!
Hope you had a most joyous New Year. Your's truly definitely did.
Tomorrow, we'll review the situation in real estate.
Marko's Take
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