CENTRAL BANKING VOODO

One of the sleeping time bombs that just recently is being discussed in the financial world is central banks getting into the equity-buying game.

Yea, we know, you most likely believe they only purchase bonds, so-called less risky assets. According to one recent report that is now coming to light, China's central bank apparently has been buying European equities with both hands. But they are hardly alone.
                                    
Some savvy investors might suggest that's like putting a put option under the market, lending support to keep equities from falling further. It could also be noted as a form of providing liquidity for sickly or flat markets, a kind of  let's-restore-the-public's-confidence ploy so they'll open their wallets more.

All well and good you say. But wasn't one of the central bankers main reasons for criticizing big banks the amount of risks the big boys and girls took on that could, so the story goes, have upset the entire global financial market? 

That's certainly one of the excuses we heard over and over for keeping interest rates this low for this long. They were preventing disaster.

Equity prices as most of us realize change. Now there's a revelation for you. One of the age-old Wall Street caveats is don't try to time the market. Only a few of the many reportedly do it successfully with any consistency. But even if one doesn't buy that rubric, there is another question here, a basic one about risk taking: Why would these bankers be any better at it than professionals who as it turns out in many years are not very good at it either?

Central bankers are known for being conservative, just ask the Dragster ECB President Mario Draghi. For a long time it looked like his vocabulary was devoid of  the word alacrity. Now the story, like many involving bureaucrats, gets even juicier.

A few years ago you may recall central bankers were unloading gold, most likely to keep a lid on the price. The excuse floated then is the old one, it doesn't yield anything. Well, today neither does any major currency. But they were selling into a scenario where the price was setting up to go much higher. And it did.

So here's the next question. Are those who brought a yield-starve feature to theaters near all of us now scrambling for yield? We'd bring up the word irony here, but that would be too obvious.

Central banks dabbling in stocks is not new. What might be new, however, is the magnitude. Among others, the problem is one of mixed messages and transparency. Are they going to ring a bell to let us all know they're selling on the second Tuesday of next week?

Oh yea, one more thing. We thought central bankers were suppose to be objective. Purchasing equities in itself is a form of favoritism. Which stocks don't you like?

AROUND THE WEB

Intrusive? It's Only Going To Get Worse
http://www.usatoday.com/story/news/nation/2014/06/18/businesses-health-workforce-vitality-institute/104

About Time
http://abcnews.go.com/US/wireStory/murray-energy-sues-carbon-emissions-rules-24203377

History Of  Oil Prices
http://www.businessinsider.com/history-of-oil-prices-2014-6

Glut Coming?
http://money.cnn.com/2014/06/17/news/economy/gas-glut-iea/index.html?iid=HP_LN

Trust
http://www.spiegel.de/international/germany/interview-with-german-defense-minister-on-russia-and-global-conflicts-a-974569.html

 Say You Want Price Controls
http://www.ibtimes.com/venezuela-colombia-smuggling-trade-thrives-1596379

The High Net Worth Crowd: Some Myths
http://www.cnbc.com/id/101744929

THE SEARCH GOES ON

U.S.Dollar Exchange

“If Washington can’t lead, it should at least get out of the way.”
                                                 
That's a quote from economist Benn Stiel, director of international economics at the Council Foreign Relations in New York. Stiel's comment came today in http://blogs.marketwatch.com/capitolreport/2014/06/19/how-the-fed-helped-cause-ukraine-crisis/, just one of several sources about how the Fed screws things up here and, what many fail to suspect, abroad.

The role the U.S. dollar plays since Bretton Woods in international markets is and has been way out of whack. Yet it's a role that allowed for, perhaps even encourages, gross financial mismanagement. Two things in that quote standout. Both are facts.

Washington can't led and it doesn't, owing to its massive arrogance, know how to get out of the way. Meanwhile, the search for an alternative international currency for trade grows, a fact few Americans even know about let alone understand..

IRAQI OIL SITUATION

For another view on the Iraqi oil situation, read this.
http://www.marketwatch.com/story/iraqs-unraveling-would-be-good-for-oil-2014-06-18 
It's a view you won't hear often. Usually when things like this get started, predictions for the worse are first to hit the news. It's inbred the MSM's DNA.

EARTH ROCKING NEWS

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.

RANDOM NOTES

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.

OUR VIEW

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.




 

READ IT AND DECIDE

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

 

"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.

TROUBLE IN FED PARADISE

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!"