In the Fed's chicken, bond tapering, or egg, interest rates, question, Yellen left reporters with the idea it would unwind the stimulus program, famously known all these long months as QE, and deal with interest rates later.
Here's a quote from one source.
At the same time, the Fed lowered its forecast for “longer run” interest rates to 3.75% from closer to 4%. This last change is important because it signals the central bank won’t push up interest rates all that high during this recovery phase.
The central bank’s policy statement that was nearly identical to the previous one issued in April. Only its description of the economy was changed — and in a way to make it more upbeat.
What we like about this quote is it's faith that the Fed "won't push up rates all that high during the recovery phase." Not unless the market does it for them.
In English grammar one learns about so-called declarative sentences, subject, verb, object. Few could put it better summarizing the fledgling Fed chief than Business Insider's Joe Weisenthal when he wrote: "Janet Yellen is a dove."
You can judge the market's reaction to this earth-rocking news. It rallied.
With nearly all eyes set on Fed Chair Janet Yellen's press conference, we thought we'd just spin off some random notes to entertain ourselves until the uproar about what the Fed might do next settles.
Alone those lines, however, we'll just make the following point to reinforce another point about central bankers that we made earlier. In today's FT James Mackintosh discusses in his The Short View column the possible threat of rising inflation and the jump, 0.4%, in month-to-month prices, double what most economists were expecting.
Though as he correctly points out officials should not base their decisions on month-to-month data, he notes there are other signs of rising inflation, ones the doves apparently choose to ignore.
Ms Yellen only has to point to the slowing housing market or stagnant-after-inflation pay to justify keeping money easy. Usually for doves, the Fed prefers an alternative inflation measure which is usually lower than consumer prices.
So here's the point put in a question: Which do you care most about, what you're paying or some trumped up cockeyed, economic measure central bankers cite? Let us know what you decide....
--Massive buybacks lent support to stocks and corporate earnings, may be waning
--Surplus of MBAs. What do they do again?
--Technology creates lots of jobs. Hooray!
--Technology kills tons of jobs. Huh?
--Professionals pressured to perform that can create thundering herd
--Retail investors twice burned in a decade remain shy.
--Identify who the cheerleaders are, can be dangerous.
--Market breadth sucks.
--No structural support beneath EU periphery bonds.
--After more than five years of cheapest money world has ever seen and inflated home and paper asset
prices nobody suspects anything.
--New villain in town, shadow banks...check your wallet.
--Cheap money buoys big M&A deals.
--Total U.S. Student loan debt $1.2 trillion.
--U.S govt. spending 42% of GDP.
--Gold doesn't yield anything and neither does euro, dollar, yen.
-Too optimistic about earnings and growth most in general?
--Unemployment in Spain high double digits and Spanish sovereign debt safer than U.S's?
--Entire scheme about avoiding any pain at all cost oath of global central bankers and politicians and banker friends.
--Utilities and gold sector leaders?
--Greek bank now attractive investments?
--IRS loses two years of e-mails....guess whose?
--U. S. Department of Justice bully runs amok. Will Citigroup grow a pair?
--Oil bulls say $140 possible, bears say $70
--Exit fees benefit whom? Look at who's pushing for them for answer.
--Obama presidency is DOA.
--Italian PM Matteo on next EU commissioner steals a page from Obama.
--NYT
columnists Paul Krugman's credibility, attacking UK's austerity
program, accusing it of false stimulus, joins Obama's presidency.
--Ecuador's previously noted bond offering may yield 8%, jump on board, Citigroup and Credit Swisse will love you.
--Forget
the Russians. The robots are coming. Expand your vocabulary. Hold tip
of tongue between thumb and index finger and say out loud as fast as you
can:, Cobots, Cobots, Cobots! You are now a certified high tech helper.
--Home prices in China falling as government plans to grow more food. Does that mean food prices will be dropping in few years?
--Shades of Marine Le Pen, Thailand tightens restrictions on migrant labor.
They're at it again.
They create a problem and then they want to penalize people for trying to take cover when the time comes.
Shadow banking is the new villain in town. Just ask your aloof, incompetent central banker in the region where you live and toil.
"Officials fear that bond funds are becoming 'shadow banks,' because investors can withdraw their money on demand, even though the assets held by the funds can be hard to sell in a crisis," the FT says.
Quoting ex-Fed governor Jeremy Stein, the Times continues, "So much activity in open-end corporate bond and loan funds is a little bit bank-like. It may be the essence of shadow banking is giving people a liquid claim on illiquid assets."
After the financial crisis the Fed hit big U.S. banks with tougher sanctions causing the big boys, among other things, to reel in their bond trading. In the meantime investors, starved for yield, have pumped since 2009 more than $1 trillion into bond funds. Bond funds, to put it simply, are bulging at the seams with money and that raises the big question these bureaucrats never ask ahead of time: What happens when things change?
Here is their answer; it's the same one they always get around to one way or another--exit fees. And their excuse is always the same, just couched in different terms. This time it's fear about market fragility. But that raises still a bigger, better question: Who caused the market fragility in the first place? Don't expect a straight answer anytime soon..
All of this is just another reason for doing away with the pathetic creatures who hang around these unhallowed halls whose main function is screwing around with peoples' lives. It's just one more reason for decentralizing..
That's our view. We hope you know yours.
If you've been following our posts--and we don't blame you if you haven't, since this is not, just so you'll know, a backslapping thing, just our humble observations, we've been suggesting the Fed is behind the curve not in front of it for a while now.
Though it still remains to be witnessed, there's more than a modicum of data to suggest the economy is up and running, that is, pretty close to full speed ahead, new neutral or no new neutral. As we've said before usually these things are recognized only in retrospect as in "When did that happen?" or "Where in the hell did that come from?"
And by the way, just in case Pimco Bill Gross is listening and we're reasonably sure he ain't, we're not trademarking any of this nor are we as economist Paul (Paul is back!) McCulley claiming we're rereading cover to cover Keynes' General Theory every Xmas. If you want to interrogate your enemies, find out quickly all their darkest secrets, forget about water boarding, just threaten them with that.
Most of us being the humans we are look only for stuff that will corroborate our biases. While we do that too with the best of them, what we also seek out is opinions from those who feel strongly the other way. Now we didn't say we like it. After all, we're as flecked and flawed as the next guy.
But over time we've learned a thing or three from doing this that helps sift through much of the popular media noise. And it's rampant. With that said here's an interesting what we call decide-for-yourself read. Read it and let is know what you decide.
http://www.businessinsider.com/chris-rupkey-on-the-economy-2014-6?utm_
"How sweet it is to be loved by you."
Those are the lines from an old James Taylor classic. And that's probably what the bureaucrats and politicians in Ecuador are humming today after their successful bond float.
If you're looking for more return on your investments, say, something like 7%, Ecuador's new US-dollar bonds are offering close to that as the tiny oil-producing South American country returns to the international debt trough. It's hardly their first trip there.
According to the Financial Times, Ecuador started marketing the bonds in London and New York last week and, should one be surprised, investors are gobbling them up. This is the country's first venture to the debt trough since is defaulted on more than $3 billion worth of debt in 2008.
As one market wag put it: "Emerging markets are again on the sweet spot." Buyers include insurance companies, sovereign wealth funds, pension funds, and, yes, even individual investors.
You can forget for the nonce about strange viruses and drug-resistant bacteria, famished yield is the newest global epidemic making the rounds today.
So let's all hang around and see just how sweet it is.
As nearly everyone under the sun who is even semi-conscious knows the Federal Reserve's FOMC two-day meeting starts Tuesday.
The debate is on. Now intensified perhaps by Bank of England Governor Mark Carney's sudden conversion from dove to hawk, it's no longer just about reducing the Fed's balance sheet but how soon, how fast and how far will interest rates get hiked?
Add to that the dilemma of which should come first, the balance sheet chicken or the interest rate egg, steadily reducing the current $4.5 trillion to something a lot less spooky or cranking up the interest rate hiking machine?
In a recent interview economist Alan Blinder, a former Fed vice chairman under Greenspan, when asked about Yellen's statements and a possible developing disagreement among current Fed board members, in defense of Yellen's position, said:
She’s going to try do everything she can to not make that happen. The
thoughts I’ve just been expressing to you are not unknown to Janet
Yellen. She’s going to try to do everything she can do to keep the lid
on. But the fact is there are serious disagreements among the Fed, and
without naming names, there are a number of people on the FOMC that
don’t hesitate to go public with their disagreements.
One doesn't have to be a rocket chemist to know which side Blinder is taking. Nor is his comment a screaming endorsement for more transparency.
There's apparently bubbling trouble in Fed paradise and that can't--given the uncertainty it might send to investors--be good for anyone let alone markets.
Stated another way, trouble in Fed paradise could mean: "Hello volatility!"
Weekends are supposed to be for relaxation to some degree.
So from time to time we like to revisit something either we or one of our contributors has written. Here's a piece from 2011 when the EU crisis was exploding on the global scene and the bureaucrats and politicians were tripping over themselves to deflect blame.
----
A lot of people believe that God whipped up the heavens and earth in six days and on the seventh, exhausted, flopped into a lounge chair, kicked his sandals off and put his feet up.
But what if He didn't? What if He used that seventh day to create the concept of credit, investment banking and along with those geniuses of Wall Street and all their political allies?
In college certain courses require prerequisites. There's a reason. One could make a sound case that debasing a language is a prerequisite for debasing a currency. Those hard-headed, self-centered Germans most economic and political pundits are complaining about today understand that all too well. And that's the problem; they get it.
Debasing a language is not much different from debasing a currency. There are prices to be paid. And they both begin, as one of Hemingway's characters in The Sun Also Rises points out when asked how he went bankrupt: "Gradually, then suddenly."
In 1964 George Orwell published an essay, "Politics and the English Language." The first paragraph pretty much tells the tale.
Most people who bother with the matter at all would admit that the English language is in a bad way, but it's generally assumed that we cannot do anything about it. Our civilization is decadent and our language--so the argument goes--must inevitably share in the general collapse. It follows that any struggle against the abuse of language is sentimental archaism, like preferring candles to electric lights and hansom cabs to aeroplanes. Underneath lies the belief that language is a natural growth and not an instrument that we shape for our own purposes.
Orwell didn't stop there. He pointed out that the decline of a language inevitably has political and economic causes and those causes are not simply owing to the bad influence of a few individual writers. An effect, Orwell wrote, can become a cause "reinforcing the original cause and producing the same effect in an intensified form, and so on indefinitely."
He was particularly harsh when it came to politicians.
"Keeping out of politics in today's world is impossible. All views are political issues," he wrote, "and politics itself is a mass of lies, evasion, folly, hatred and schizophrenia. When the general atmosphere is bad, language must suffer."
The Germans and some others simply want to hold the mark on the language agreed to in the Maastrich Treaty. That language called for fiscal and monetary responsibility. Their critics obviously see it differently, taking the just-this-one-time-it-won't-happen-again path to justify their stance.
Even Bill Gross, the Pimco bond guru whose performance this year has been anything but sterling, in his latest screed chimed in, taking his cue from a quote on a 12-year-old coffee mug he received as a gift: "You can always tell a German, but you just can't tell him much." Quite cute to be sure, but really just another round of verbal legerdemain.
"The whole tendency," Orwell noted, "of modern prose is away from concreteness." He included activities like public speaking and speech writing. Germans admire the concrete, debasers the abstract.
The Germans are trying to hold the line against abstraction, one of the main tools the bebasers of language and, apparently as it follows, a currency, love to use.
Take a look at the so-called $1.2 trillion spending cuts our illustrious President recently claimed he would steadfastly veto any attempts to trim after the super-duper committee went snap, crackle and popped. On his part it appears to be an admirable stand against the economic philistines.
The key phrase is spending cuts. Anyone who thinks those are real cuts in real spending as in real deficit reductions should look again. It's obfuscation, a euphemism for lying, of the worst kind. Orwell no doubt would deplore the use of such a highly Latinate word like obfuscation. It's precisely what he wrote about, the dishonest use of dishonest words to deceive, the hallmark of politicians, bureaucrats, statesmen and other assorted species of the gas-inflated.
We've yet to hear anyone suggest that maybe the initial project was too ambitious to begin with. Even Jacques Delors, the man credited with creating the euro, is deflecting blame. In a recent interview from the UK scribe, The Telegraph, Delors states "surveillance" was a problem (An interesting choice of words for a European.), as bureaucrats, the Council of Ministers, failed to police member states to ensure they followed economic convergence criteria. Don't know about you, but that sounds like they reneged on an agreement they signed.
Even the word science, Orwell pointed out, isn't immune. It's a word like many others--e.g., patriotic, democracy, justice, realistic, to name a few: "Words of this kind are often used in a consciously dishonest way. That is, the person who uses them has his own private definition, but allows his hearer to think he means something quite different."
Like a blanket of soft, fresh snow the doomsayers wallowing in their gloom fest are all over the problem. So what if a few countries opt out of the monetary union? It's happened before, more than 80 other times since the 1940s, and most ended so horribly that hardly anyone can remember.
It isn't like the EU bureaucrats and politicians didn't know what they were getting, especially with Greece and Italy. So who are the naive here, bureaucrats and politicians who cooked up this scheme, expecting a quick religious conversion, or those of the so-called peripheral, weaker countries?
Perhaps this whole mess is a clear warning to the rest of us about international bureaucrats and politicians who keep pushing for globalization, one-world government and the end of local sovereignty, a clear signal just how dangerous these supposed know-it-alls are.
For many of Germany's critics the outcome of no bailout represents a kind of living Dante's Inferno. Worse still, a clutch of investment bankers and their ilk will likely take a big hit. The repercussions could provide another round of shock and awe.
But maybe, just maybe that's what the entire system needs. Maybe then, just maybe words and meaning will carry some real meaning.
We don't often write about individual stocks to buy especially in this schizophrenic market were many stocks are overvalued, others fair-valued and few, if any, undervalued.
So with this parenthetical warning we will give a couple of examples of stocks we own that we are looking to add to on any pullback. In fact, the bigger the pullback, the more we want to add. We also note, like that Dos Equi guy, we don't often sell. That should give a little insight to our madness.
Companies are like boundaries. They come and go. The components of the DJIA of your great grandfather's day are hardly the same as today.
Then there are those famous Nifty-Fifty of the 1960s and early 1970s. Though there was never a formal list--in fact two lists were often cited, Morgan Guaranty and Kidder Peabody, a large stock broker firm of the time--more than a few like Polaroid, Burroughs, Eastman Kodak and Kresge went either bankrupt or are forgotten memories buried inside some poor functioning survivor.
History teaches markets go through conglomerating and un-conglomerating. Probably one of the least valid reasons for conglomerating is to add value. We recently witnessed one with Pfizer-Astra-Zenica. Anyone believe, had the deal gone through, the new firm would have been named Pfizer-Astra?
Mergers and acquisitions are again the rage of the day if one can believe what one reads. Cheap money has it's price. Are Spanish bonds really cheaper-safer than U.S. ones? But like everything else this too shall pass until another time arrives, all part of the cycle.
With all due respect to the quantitative grunts if you're locked into numbers you probably won't appreciate our choices. We pay attention to those things too. We just don't consider them as some do the alpha and omega alter. The price of a stock is mostly about what someone will pay. And we think our choices people will pay a lot more for in their future.
Our first one, though hardly a suggestion that it is the best one, comes from the oil patch, Marathon Oil. Recently in the news for selling its Norwegian assets for $2.1 billion net proceeds, according to reports, the move highlights the conclusion of MRO asset sales bringing a total of $6.2 billion since it spun off its refining company, MPC, to concentrate on the E&P side in 2011.
Though we have many reasons for liking the stock, one of them just happened today when Wells Fargo downgraded MRO's status to market perform from outperform at the same time another firm, Jefferies, initiated coverage with a buy rating. We just love the scent of Wall Street confusion.
To put a number on it we think it's worth $45 a share conservatively, will hike its dividend and will develop its higher-margin assets in the U.S. where it intends to concentrate efforts, not a bad strategy if you fear geopolitical friction or supply interruptions. Our pullback number is in the $33-$35 range.
In our view, the market is due for a sharp, short pullback, maybe 4-9%, could be a bit more, before it retraces that loss and moves higher on its way to a much bigger decline down the road. And that's the decline you want to be prepared for.
We'll list another of our pullback picks, one we've mentioned before, in a couple of days.
We understand there's much to do about oil owing to the recent Iraq situation, the Ukraine and other troubled oil-producing areas around the globe, not to mention the downward pressure put on the producers of the black stuff by the climate-change crowd.
With oil's recent surge above $106 a barrel, its highest level in nine months, concern is starting to mount. Anyone short oil in recent weeks is beginning to feel some pain just as the longs might do later if a calmer period develops in some of these areas.
Higher prices could put oil producers in a more enviable position to search for more oil. It's also something the Russians firmly welcome given the sanctions. Not so with the EU. To be sure, others will say the recent explosion of the shale oil business will help soften the blow somewhat.
That's a real possibility but it's just as possible that the U.S. will figure out some way to squander what resources it currently has in the shale beds. For such a much-hated commodity that federal and state bureaucrats and politicians love to feast on for a source of their fanciful spending ventures it's one of the great human hypocrisies.
The point here is oil will remain a volatile commodity for years to come. And we're still buyers for the long term on any pullbacks.
If you bothered to read our recent post about Mexico,
you'll recall we stated not a single economist predicted the recent rate
cut.
Now there is no issue
here with timeliness or one upping anyone just further collaboration.
We've been talking about EMs and how at the beginning of the year they
were cited by the cognoscenti as the place not to be.
That this has been a difficult and surprising year, one
few saw coming, should not surprise. And that's the point. After the
incredible debacle at the Bay of Pigs, President Kennedy was quoted as
saying in a regretful, self-castigating tone that he knew all along not to trust the
experts.
After the great stock market run of last year too many expected smooth sailing ahead. That could still occur. But
truth be spread, there are just as many things that could go wrong as
could go correct. And most of us humanoids, though we rarely care to admit it, look only for those things that buttress our own beliefs.
Here's decent quick summary on recent EM actions.
http://www.marctomarket.com/2014/06/emerging-markets-what-has-changed_12.html
