Category — Overseas News
Only one letter separates the words ‘paper’ and ‘taper’.
And yet, in the financial world the difference between a P or a T is massive.
After last week’s release of July’s FOMC Meeting Minutes, Wall Street thinks there is no real intention to quit the printing of paper just yet. Paper wins.
Maintaining the same massive dose of adrenalin or slightly reducing the rate is academic. The Great Credit Contraction has damaged the economy’s organs and the stimulants are only masking the deeper problem.
The US Federal Reserve has indicated arbitrary targets of 6.5% unemployment and a 2% annual increase in consumer prices as the signals it wants to see before slowing down the printing presses.
Here is an extract from the FOMC Minutes:
‘First, almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June post meeting press conference and in the July monetary policy testimony.
‘Under that outlook, if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014. At that point, if the economy evolved along the lines anticipated, the recovery would have gained further momentum.‘
August 27, 2013 Comments Off
I sought in political reporting what Galsworthy in another context had called ‘the significant trifle’ — the bit of dialogue, the overlooked fact, the buried observation which illuminated the realities of the situation.’ — I.F. Stone, The Haunted Fifties (1963)
I start with a hidden problem in the stock market’s latest earnings report card. Overall, earnings rose about 2% for the quarter. But if you take out the financials (banks, insurers), earnings actually fell by 3%.
That’s a problem.
I appeared on Fox TV Friday morning. Before the show, I said I wanted to talk about this earnings stuff. The producer asked, ‘Do you think that’s too technical to explain?’
‘I should hope not,’ I thought to myself. I hope people understand that earnings (or profits) drive the stock market over the long term.
Specifically, the market rises and falls based on what the consensus guess is about where earnings are going. The market looks ahead. So you can match up the S&P 500 — a broad proxy for the market — with the consensus guess for earnings in the coming 12 months (the so-called ‘forward estimate’). [Read more →]
August 26, 2013 Comments Off
It is beneficial to your health to tune out the noise and clutter that passes for information in the financial markets.
A good example is trying to divine the importance of words uttered by US Federal Reserve Chairman Ben Bernanke. With China showing no signs of a stock-market-boosting stimulus plan, the punters will hang on the lips of the Federal Reserve chairman for clues about ‘tapering’.
But let me ask you this, do you think your investment plan can benefit from trying to guess what Bernanke is going to do next? Is there any advantage to be gained by correctly guessing his internal emotional state? If not, then why bother?
The most important words ever penned by Ben Bernanke with regard to deflation and the effectiveness of quantitative easing to ‘stimulate’ aggregate demand were penned in a paper he published with Vincent Reinhart and Brian Sack in 2004. It’s called Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment.
I encourage you not to read it. It’s absolutely insane. More importantly, in confirms that Bernanke has been reduced to trying to influence investor expectations through communication. This is what happens when you can’t pull the interest rate lever. You have to try talk therapy. The fact that Bernanke et al. dedicate so much of their paper to it is evidence of how deep down the rabbit hole they are in their monetary thinking. But let me show you some specific quotations, with my emphasis added: [Read more →]
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