Fed Will Cause a 2008 Redux

By Michael Pento – Re-Blogged From http://www.PentoPort.com

Truth is a rare commodity on Wall Street. You have to sift through tons of dirt to find the golden ore. For example, main stream analysis of the Fed’s current monetary policy claims that it will be able to normalize interest rates with impunity. That assertion could not be further from the truth.

The fact is the Fed has been tightening monetary policy since December of 2013, when it began to taper the asset purchase program known as Quantitative Easing. This is because the flow of bond purchases is much more important than the stock of assets held on the Fed’s balance sheet. The Fed Chairman at the time, Ben Bernanke, started to reduce the amount of bond purchases by $10 billion per month; taking the amount of QE from $85 billion, to 0 by the end of October 2014.

The end of QE meant the Fed would no longer be pushing up MBS and Treasury bond prices (sending yields lower) with its $85 billion per month worth of bids. And that the primary dealers would no longer be flooded with new money supply in the form of excess bank reserves. In other words, the Fed started the economy down the slow path towards deflation.

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Titanic Parallel To The Federal Reserve

By GE Christenson – Re-Blogged From http://www.Gold-Eagle.com

Thinking about the 105th anniversary of the sinking Titanic, the Titanic-sized debt in the world, and the role of central bankers…

The RMS Titanic departed Southampton, England at noon on April 10, 1912 and struck an iceberg in the North Atlantic just before midnight on April 14. She sunk less than three hours later. Her maiden voyage lasted about 110 hours.

The Federal Reserve, the central bank of the United States, was created by Congress late in 1913. Her “maiden voyage” devaluing the dollar has lasted over 103 years.

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Trump’s Biggest Enemy is the Fed

By Michael Pento – Re-Blogged From PentoPort

Right on the heels of Donald Trump’s stunning election victory, Democrats began to diligently work on undermining his presidency. That should surprise no one. It’s just par for the course in partisan D.C.

However, what appears to be downright striking is that the Keynesian elites may have found a new ally in their plan to derail the new President…the U.S. Federal Reserve.

First, it’s important to understand that the Fed is populated by a group of big-government tax and spend liberal academics who operate under the guise of an apolitical body. For the past eight years, they have diligently kept the monetary wheels well-greased to prop up the flat-lining economy.

However, since the election the Fed has done a complete about-face on rate hikes and is now in favor of a relatively aggressive increase in its Fed Funds Rate. And I use the term relatively aggressive with purpose, because the Fed raised interest rates only one time during the entire eight-year tenure of the Obama Presidency. Technically speaking, the second hike did occur in December while Obama still had one full month left in office. But coincidentally, this only took place after the election of Donald Trump.

Keep in mind a rate hiking cycle is no small threat. The Federal Reserve has the tools to bring an economy to its knees and has done so throughout its history of first creating asset bubbles and then blowing them up along with the entire economy.

Remember, it was the Fed’s mishandling of its interest rate policy that both created and burst the 2008 real estate bubble. By slashing rates from 6.5 percent in January 2001, to 1 percent in June 2003, it created a massive credit bubble. Then, it raised rates back up to 5.25 percent by June of 2006, which sent home prices, stock values and the economy cascading lower.

In the aftermath of the carnage in equity prices that ended in March of 2009, the Standard & Poor’s 500 stock index soared 220 percent on the coat tails of the Federal Reserve’s money printing and Zero Interest Rate Policies. But during those eight years of the Obama Administration, the Fed barely uttered the words asset bubble. In fact, it argued that asset bubbles are impossible to detect until after they have burst.

But since the November election, the Fed’s henchmen have suddenly uncovered a myriad of asset bubbles, inflation scares and an issue with rapid growth. And are preparing markets for a hasty and expeditious rate hike strategy. The Fed has even indicated in the minutes from its latest FOMC meeting that it actually intends on beginning to reduce its massive $4.5 trillion balance sheet by the end of this year. In other words, trying to raise the level of long-term interest rates.

In a recent interview, Boston Fed President Eric Rosengren has suddenly noted that certain asset markets are “a little rich”, and that commercial real-estate valuations are “pretty ebullient.” The Fed is anticipating as many as four rate hikes during 2017 with the intent to push stocks lower, saying that “rich asset prices are another reason for the central bank to tighten faster.” Piling on to this hawkish tone, San Francisco Fed President John Williams’s also told reporters that he, “would not rule out more than three increases total for this year.”

The Fed is tasked by two mandates, which are full employment and stable inflation. However, it has redefined stable prices by setting an inflation goal at 2%. Therefore, a surge in inflation or GDP growth should be the primary reasons our Fed would be in a rush to change its monetary policy from dovish to hawkish.

Some people may argue that the Fed has reached its inflation target and that is leading to the rush to raise rates, as the year over year inflation increase is now 2.8%. The problem with that logic is that from April 2011 all the way through February 2012 the year-over-year rate of Consumer Price Inflation was higher than the 2.8% seen today. Yet, the Fed did not feel compelled to raise rates even once. In fact, it was still in the middle of its bond-buying scheme known as Quantitative Easing.

Perhaps it isn’t inflation swaying the Fed to suddenly expedite its rate hiking campaign; but instead a huge spike in GDP growth. But the facts prove this to be totally false as well. The economy only grew at 1.6 % for all of 2016. That was a lower growth rate than the years 2011, 2013, 2014, 2015; and only managed to match the same level as 2012. Well then, maybe it is a sudden surge in GDP growth for Q1 2017 that is unnerving the Fed? But again, this can’t be supported by the data. The Atlanta Fed’s own GDP model shows that growth in the first three months of this year is only growing at a 1.2 percent annualized rate.

If it’s not booming growth, and it’s not run-away inflation and it’s not the sudden appearance of asset bubbles…then what is it that has caused the Fed to finally get going on interest rate hikes?

The Fed is comprised of a group of Keynesian liberals that have suddenly found religion with its monetary policy because it is no longer trying to accommodate a Democrat in the White House. It appears Mr. Trump was correct during his campaign against Hilary Clinton when he accused the Fed of, “Doing Political” regarding its ultra-low monetary policy. Now that a nemesis of the Fed has become President…the battle has begun.

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Dow 20,000 Deja Vu

cropped-bob-shapiro.jpg   By Bob Shapiro

In the last 50 years, prices have gone up around 20 times. Aside from the obvious fact that the FED’s printing of new Dollar Bills out of nothing has stolen 95% of the Dollar’s value, I find it interesting when I consider the Dow Jones Industrial Average.

Around 50 years ago, the Dow approached the 1000 mark for the first time. (I recall seeing a Broaway show “How Now Dow Jones” which used Dow 1000 in the plot line.)

dow-65-to-82

But, the Dow couldnt make it past 1000 at that time. It pulled back by 25% and made another run in ’69, but still it fell back – way back.

The Dow made another 3 tries – and even made it 7% above 1000 before the Recession in 1974 – but it wasn’t until 1982 that the Dow finally broke above 1000 for good.

That was 16 long years that the Bulls had to wait. If a market player had invested all he had in 1966, it took him 16 years before he could start to make a profit.

Of course, the CPI kept going up, so Dow 1000 in 1982 wasn’t worth nearly as much as Dow 1000 was in 1966!

If we consider today’s Dow 20,000 – after prices have run up 20 times – the stock market looks very similar to 1966 with the Dow at 1000.

Except that today:

  • The FED has been printing Dollars for the last 10 years at a much faster pace than it did between 1956 and 1966.
  • The PE Ratio today is around 50% higher than on the Dow 50 years ago.
  • The stock buybacks of today, with their manipulative effect on earnings, were only a twinkle in corporate officers’ eyes in 1966.
  • The Dollar still was “As Good As Gold,” and was 3-4 times the value in 1966 to other currencies compared to today, even after the recent run up.
  • The numbers coming out of DC for such items as Prices and Unemployment were reliable back then, as opposed to the laughable fictions they are today.

So, I guess maybe today’s Dow 20,000 is a bit overextended compared to Dow 1000 in 1966. In 1974, the Dow fell around 50% peak to trough.

But if the Market and the Economy are not in as good shape today as in 1966, then maybe the coming fall from grace will be much bigger.

Do I need to say, “Look out below?”

Major Stock Bear Still Looms

By Adam Hamilton – Re-Blogged From Zeal

The US stock markets spectacularly defied the odds in 2016, soaring after both the UK’s Brexit vote and US presidential election.  Both actual outcomes were universally feared as very bearish for stocks before the events.  These contrary stock rallies have left traders feeling euphoric, convinced stock markets are impregnable.  But with stock valuations hitting bubble levels in an exceedingly-old bull, a major bear still looms.

Though you wouldn’t know it in recent years, stock markets are forever cyclical.  They rise and fall, flow and ebb, in great valuation-driven cycles.  Bull markets always eventually give way to bears, and vice versa.  Stocks can’t and don’t rise or fall forever, extreme popular greed or fear never last for long.  The history of stock markets looks like a great sine wave, an endlessly-alternating series of bulls and bears.

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Irrational Exuberance In US Stock Market Grasps At 20K For Dow Index

By David Haggith – Re-Blogged From Great Recession Blog

Since Trump’s election, the US stock market has climbed unstoppably along a remarkably steep path to round off at a teetering height. Is this the irrational exuberance that typically marks the last push before a perilous plunge, or is the market reaching escape velocity from the relentless gravity of the Great Recession?

This burst of enthusiasm in response to Trump’s victory, flew in the face of almost everyone’s predictions. That it lifted the market from seven months of languor certainly makes 20K on the Dow look like the elevation marker of a breathtaking summit.

While breaking 20k, if it happens, may be as meaningless as one more mile on the odometer when all the numbers roll over, it is psychologically potent for many. Breaking through it, could cause fear as eyes turn down and see how far below the earth now is, or the rarified air up here may bring euphoria that lifts the market to even greater levels on a rising current of hot air.

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