Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts

January 2, 2016

Market Watch 2016

I took this photo in the mall on New Years Day--yes, the stores were actually open on the holiday.

And Macy's was having a blowout sale with racks and racks of "80% Off Original Price[s]."

We were laughing saying what's next--99% Off and then even 100% off! 

So you think the economy is healthy with fire sales like these on the very first day of the new calendar year--when we still have another 364 days to make our year end sales quotas...

With turbulence around the globe brewing from Iran, Syria, Russia, North Korea, Yemen, Sudan, Nigeria, ISIS, and more...anyone care to say (pending) crisis.

How about commodities--my bet--that are in the toilet (and have been for years now)--do you really think no one needs iron, aluminum, nickel, lead, cooper, potash, oil, gas, coal, diamonds, and gold anymore? 

Then the Wall Street Journal warned again today about the overall investment marketplace, asking "How do you invest when everything is expensive? [at 25 times cyclically adjusted earnings--now that's a fancy term]?

We've been down this road before in the bubble bursts and recessions of 2001 and 2008.

Is now really the time for the Federal Reserve to be raising interest rates (and what a nifty ripple effect that will have in both slowing our economy down and raising our interest payments on our already ballooning $18 trillion national debt)?

Oh, technology to the rescue again and again...it's possible with everything from virtual reality to robotics and artificial intelligence on the cusp...or maybe not this time around. ;-)

(Source Photo: Andy Blumenthal)
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September 14, 2015

The Unbelievable Stupidity Of Raising Interest Rates

Interest rates have been near zero since the recession of 2008.

That supposedly to stimulate the economy. 

However, aside from a stock market bubble again, not sure we have a much stimulated economy.

We have a false low on the unemployment rate, while the the true percentage of the labor force working is the lowest in almost 40 years!

Moreover, manufacturing is down almost 40% from the 1979 peak with a loss of over 7.2M jobs

Commodities are at firesale prices as demand is sluggish and there is short-term oversupply. 

And innovation is facing a global slowdown

So people are out of work, we're not making things, demand is depressing prices, and even ideas are few and far between--not too rosy a picture, regardless of what some politicians may have you believe. 

Let's not forget that we have an over $18 trillion federal debt, and this is projected to grow ever greater as we borrow to fund social entitlements such as social security, medicare, etc. 

In this scenario, why would the Federal Reserve ever want to raise interest rates?

Well, if they don't raise rates, then they can't lower them later again when the economy really stalls out and goes into deep recession. 

Hence, this is seen as a tool for their financial toolkit--and if there are no tools with which to manipulate the economy, then there is no need for a (neutered) Federal Reserve. 

But think for a second what happens when the Fed raises rates, it's going to slow the economy even further than the chug chug chug economy that we are already dealing with. 

Maybe even more important, it will raise the amount of interest payments we must folk over on the trillions of dollars of debt we owe.  

Simply put, when we raise interest rates, we pay more interest on our already astronomically high national debt, and this pushes our national deficit up even higher as we borrow more to pay the interest on the previous debt. 

If you did this with your credit cards, you'd probably be looking at the equivalent of debtor's prison sooner or later. 

Rather than feed the Fed's toolbox with interest rate bumps and drops, why not keep rates low as long as they can stay low, reducing our interest payments, and curtailing our national deficit and debt. 

What about the stock bubble...that's a lesson investors will be learning about in their own good time--it's the stock market, stupid. ;-)

(Source Photo: Andy Blumenthal)
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July 2, 2014

Money, It's Something

Just an observation today about there being so much poverty in the Nation's capital and around the country. 

Homeless, hungry, and sick people on the streets in one of the richest countries in the world. 


Yet, we have trillions going overseas to fight wars with seemingly little to no tangible benefits.


And so much ostensible waste with pork barrel politics, inefficiencies, and failed projects. 


A relative joked with me the other day saying, "It doesn't matter if you're rich or poor as long as you have money!"


Here we borrow money ($17.6 trillion ) and print money and the Federal Reserve buys debt ($4.1 trillion ) to keep interest rates low and the economy churning.  


People from real estate mogul, Donald Trump to Economist, Robert Wiedemer, who predicted the last recession, are warning of dire economic consequences because of these short-sighted policies. 


So do we have real money to continue to burn or is it smoke and mirrors and as Wiedemer says, "the medicine will become the poison"--what do you think?


(Source Photo: Andy Blumenthal)

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January 21, 2014

Care To Be Curious?

Here's three topics for the curious of mind today:

- Are we technologically safer?  As we attempt to beef up IT security, we continue to be technologically insecure. Just this last week, BBC reported how a fridge was part of 100,000 devices used to send out 750,000 pieces of spam. Yes, a fridge, and there was also a television involved--sounds like the beginning of a bad joke, right? But this is our reality these days...Proofpoint, a cloud computing and security company said "Many of these devices are poorly protected at best, and consumers have virtually no way to detect or fix infections when they do occur."

- Is our economy healing or hurting? As unemployment fell from 7% to 6.7% last week--an impressive reduction--the overall labor force participation rate didn't rise, but rather sank to 62.8%--its lowest level in 35 years! And while, the Wall Street Journal explains that U.S. employment is simply not keeping up with population growth, the S&P 500 hit a new record high just last Wednesday. Meanwhile, the Fed continues to pour money into the economy, although at a slowing rate (expected to go down next week to only $65B a month), speculation is building whether we have another real bubble brewing, and this one of our own making, perhaps. 

- Is this the lead up to peace or war with Iran? As we continue to seek a long-term deal with Iran on their dangerous nuclear weapons foray, we read from Bret Stephens that Iranian President Rouhani said during his presidential campaign, "Saying 'Death to America" is easy...We need to express 'Death to America' with action." If we are getting a good deal that can truly lead to WMD disarmament of Iran, why did Rouhani tweet, "In #Geneva agreement world powers surrendered to Iranian nation's will." Curious, whether this is for political consumption in Iran or whether he sees the deal as just a stalling tactic leading to a breakout capability in nuclear weapons as well as a way to get some goodies in terms of sanctions relief for his country in the meantime.

What does little kitty cat say about these? ;-)

(Source Photo: Andy Blumenthal)
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September 27, 2013

Is This The Way It's Supposed To Work?

As talk and warnings escalate about a potential government shutdown next week (not that long since the last time this happened a couple of years ago), one cannot help wonder is this the way government is supposed to work?

The partisanship and fighting has gotten so that either nothing significant gets done or get's done by just one party leaving the other fuming.

The fight over healthcare reform pushed through for better or for worse has come back to haunt the Hill. Aside from a lot of talk about exchanges, I haven't found many people that even really understand the changes or whether it actually benefits them or not. 

The continuing Fed stimulus that many anticipated was going to start tapering off, but hasn't, has left many concerned whether there is another huge economic bubble building and what will happen to stocks, housing, and jobs when the Fed finally does pull back. 

The Sequestration which was never supposed to actually take effect, but was to replaced with more surgical budget cuts, continues to leave the nation vulnerable in terms of potential budget shortfalls for areas of national priority (e.g. defense and so on) and still leaves a mounting national debt (albeit growing at a slower pace). 

The seesaw between the threat of military intervention and the potential for diplomatic solutions with Syria and Iran on no less than weapons of mass destruction have us asking whether these countries are serious, stalling, and really willing to give them all up or just buy time in their efforts to get over the finish line of proliferation, hiding, and burying the stockpiles.

Somehow we seem to be fighting each other more than we are tackling the issues. 

Are we really talking with each other, listening with intent to understand, and seeing what is at stake?

We are playing brinkmanship on critical issues of national security that may leave us holding the toilet paper and plunger as we swirl around the bowl ready for the royal flush. ;-)

(Source Photo: Andy Blumenthal)
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August 17, 2013

Economics, Pendulum Style

To combat the recession of 2007, the Federal Reserve initiated an aggressive policy of Quantitative Easing--purchasing federal debt en masse to flood demand for Treasuries and lower interest rates to near zero to stimulate the economy. 

As of June 2013 the Feds balance sheet has swelled to over $3.4 trillion in assets of treasury debt. What happens when the Treasury has to repay those trillions? 

Who is the Treasury going to borrow that money from and at what interest rate? 

Just like raising demand for Treasuries lowered interest rates, increasing the supply of Treasury debt to pay back the Federal Reserve will make interest rates go way up the other way. 

Rising interest rates makes borrowing more expensive--e.g. buying a car with an auto loan is more expensive, buying a home with a mortgage is more expensive--and inflation can skyrocket. 

But what is worse is that despite the recent slowing of the growth of the national debt, many economists calculate the total US debt at a whopping $70 trillion when you include the host of unfunded liabilities including social entitlements such as Social Security, Medicare, Medicaid, as well as government loan guarantees (mortgage, student loan, etc,), deposit insurance (i.e. FDIC(, and the money owed to the Federal Reserve. 

What is really sad about this is that the entire wealth of American families in this country is guess what--also $70 trillion--which means that we are essentially a bankrupt nation:

Family assets of $70 trillion - Family liabilities of $70 trillion = a big fat 0 in the kitty!

To pay back the $70 trillion, it is not realistic that we will simply "grow our way out" of this fiscal mess with a GDP growth rate over the last 20 years of a mere 2.6%.  

Also, we will likely not confiscate people's assets to pay off the debt, rather we will print money--lots of it--so that we end up paying back the trillions of past debt in much devalued future money. 

Head we win, tails you lose!

The problem is that devaluing the dollar will mean that American family savings will become worth less as well--with the risk, at the extreme, of wiping out mass amounts of savings altogether. 

Despite sequestration reducing the rate of our debt growth, the aging baby boomers with the resulting liabilities for their care will soon escalate the debt problem once again. 

David Walker, a former U.S. Comptroller has warned about our national debt problem as well as many prominent economists. 

Like a pendulum swinging from one extreme to the other, the spendthrift ways of the past will by necessity lead to penny-pinching in the future, and inflation rates of near zero since 2007 will lead to hyperinflation after 2014.  

It reminds me of the story of Joseph in the Bible, with the 7 lean years follow the 7 fat years (in Egypt that time)--this is not just providence, but common sense economics. 

Good times will come again when there is a return to the mean and the pendulum hovers near center, but the swings until then can be wide and scary.

Of course, like taking your medicine, the earlier we start to course-correct our nation's finances, the sooner we get healthy again. ;-)

(Source Photo: here with attribution to zzz zzz)

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May 30, 2013

Balancing The National Books

Bret Stephens had an interesting opinion piece in the Wall Street Journal (28 May 2013) called "The Retreat Doctrine."

He argues that America's retreat militarily from Iraq and Afghanistan may not mean revitalization for us by refocusing on domestic issues, but rather decline by prematurely ending a war with enemies that may not have ended their hatred and hostilities to us. 


Interestingly enough, it is not just on the battlefield that we are retrenching, but on many other fronts as well, for example: economically, we are cutting federal budgets; monetarily, we are anticipating cutting the $85 billion per month bond buying by the Federal Reserve; social entitlements like Social Security and Medicare are on the butcher block, defense cuts are imperiling military programs, and employment cuts have resulted in a labor force participation the lowest in 30 years. 


While many cuts are beneficial in terms of beginning to get our arms around the over $16 trillion deficit we've accumulated and in forestalling another rating downgrade by the big three credit rating firms, it is as Stephens implies, perhaps not a sign of health and renewal, but of national illness and a retrenchment of a global power. 


I remember in Yeshiva learning (Exodus 34:7) about the sins of the fathers being visited on the children and grandchildren--3 and 4 generations--and I always wondered how could a just G-d hold future generations responsible, accountable for what the prior generations did?


But perhaps, the answer is evident here, where we cannot blame G-d for our own actions, where we live big, beyond our means, and cause future generations to pay the piper.  


When the stock market is rallying--up almost 17% year to date and about 27% over the last year, while our GDP growth is only about 2.4% annually, something is very off-Kilter. 


You can argue that retreat is renewal or you can see retrenchment as leading to decline, but either way we will be paying the national bill coming due and all our children will be on the hook for cleaning up after the party is over. ;-)


(Source Photo: Andy Blumenthal)

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