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  • Summary Of My Post-CPI Thoughts [View article]
    More from the daily emails.

    "James Bullard yesterday said the odds of a September rate hike are better than 50-50. The fact that he talked odds rather than his preference suggests he is handicapping the entire FOMC rather than offering an opinion. Of course, if he is, he is doing it in light of his forecast for the next couple of months data, which is bound to be bullish knowing Bullard. "

    "Bloomberg News makes the case that December is not a good time for liftoff because Treasury market liquidity (fixed-income liquidity period) has been extremely thin at year end in recent years. It’s a good point. If they can go in September, it would give the market time to digest higher rates before December. And it would give the Fed a chance to see the effect of tightening in a healthy market environment."

    Again, remember, the point is not necessarily when the Fed raises the DR (though its nice to know for timing purposes), but what will happen when they do, and it won't be what the Fed worshippers promise.

    Barring any other major changes in the environment, like tax cuts or reductions in regulations or increased QE via the ECB, a DR increase is a bias towards risk-off. 25 bps isn't a huge move, but what we might see is the 10 yr stays range bound in the 2.30s and the S&P right around 2100. A second rate increase might be enough to put the 10 yr into the 2.20s and the S&P in the 2000 range. Again, its a bit too soon to tell, but again, the main point is that an increase in the DR is a signal for a bias towards risk-off. (and a signal for Fed worshippers to start warming up their excuses for the Fed and their amnesia about the prior promises of what the Fed would do).
    Jul 21, 2015. 12:20 PM | 1 Like Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    "and its actions are therefore limited to harm reduction."

    Ha! That's a joke. The Fed causes the asset deflations that lead to the recessions and depressions. The two great examples are Young in the late 1920s after Strong died (aka the market crash of 1929), and then Greenspan and BB from 2004 to 2007 (aka the market bottom in March of 2009). There have been smaller episodes, but the two mentioned are the most glaring.

    Now, fiscal policy can do the same. Fiscal policy does the same as a DR increase via taxes (including regulations which are just disguised taxes), because when the IRS taxes Fed notes out of the system via increased collections by the IRS, its the same thing as the Fed contracting which basically provides less Fed notes in the system.

    Both hurt asset prices, and by hurting assets prices both create harm. So this omnipotent claim that the Fed can engage in harm reduction is also a myth.

    However, I will agree with you that Obama has been lousy on fiscal policy. Here are some of today's releases.

    "The Fed just released revised industrial production data and there are huge downward revisions. In 2015, production is now negative every month instead of 4 of 6. 2014 was revised from 4.1% to 3.7%. 2013 was revised from 2.9% to 1.9% and 2012 was revised from 3.8% to 2.8%. "

    Fiscal policy should be more accommodative, and it hasn't been. So just like Hoover and FDR, we have had very "unaccommodative" fiscal policy and thus a malaise (as you seem to recognize). The burden on productivity needs to be reduced via lower taxes and lower regulations, just like the Fed has been attempting to do, after causing harm from 2004 to 2007. Fiscal policy needs a similar reversal if we want to see NFP at 500k each month (in Sept of 83 NFP was over 1 million in just that month alone) and GDP in the 5% range with wages growing.

    Until we see that, expect rates to stay low for a very long time, maybe 10 to 20 years.
    Jul 21, 2015. 12:15 PM | 1 Like Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    "it's the Fed critics that inflate the myth of an all powerful Fed"

    The people who created the Fed claimed it would end all economic downturns. That's quite the claim. So are you now saying the people who created the Fed are also critics of the Fed by saying it would end all economic downturns just so they could knock it down? Listen to how convoluted that sounds. I would suggest you do a little more reading on the Fed and don't just get your talking points from uninformed journalists at NPR or MSNBC.

    "No one who thinks the Fed has acted correctly and responsibly thinks the Fed has falsely claimed omnipotence"

    Well, there's a standard that deserves high moral praise. It basically claims that "we are going to do whatever we can to the best that we can with what we have whenever we can so that we will accomplish what we think we can accomplish". In other words, no standard at all. Notice how they all conveniently forget that the promise of the Fed was to end all economic downturns. Also notice all the high praise that the Fed saved the world from economic collapse, and now all of a sudden, the Fed apparently has very little power at all.

    So, at one moment the Fed has the power to save us all, and then in the next moment it has all sorts of limitations. Apparently even the Fed mandate is a law. Apparently "full employment" was just a lie too.

    The Fed defenders remind me of people defending a cult. Their confirmation bias is so thick that they will willing drink the cool aid.

    Again, SA is an investing website. Its not for the religiously fanatic. A dogmatic defense of the Fed is not consistent with the pragmatic realism that is necessary for investing. The Fed is a subsidy mechanism, plain and simple. When it is expanding and accommodative, the subsidies are ramped up, and its risk-on. In general that means equities up, and interest rates up. When the Fed is not accommodative, the subsidies are turned off. That will generally mean equities down and interest rates down.

    This all happens in a cycle as the Fed tries to "manage the economy" (quite a task for an entity that apparently has very limited power). The Fed's preoccupation with its own short sighted ideologies as it tries to "manage" inflation results in the Fed expanding and contracting thus leading to cycle of pumping up the risk-on scenario and then deflating as it brings the risk-off cycle.

    For those willing to leave their dogmatic allegiance to such an entity will find that they will understand the ups and downs of the market, and will the be able to better protect themselves by being better prepared.
    Jul 21, 2015. 12:04 PM | 2 Likes Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    "I have no reason "

    I would agree that you have no reason, because your ideology does not permit you to have reasons. However, your ideology does not change the realities of the physical world. As has been noted before, the Fed doesn't even understand its own research that increases in wages do not lead to inflation, yet, they keep repeating that myth.

    Additionally, the idea that the Fed "avoids" doing bad is only their opinion, and it is an opinion forged by ignoring all the facts that countermand it. The ideologies that drive the Fed and its "officials" is one of fanaticism. SA is an investing website, and investing requires hard analysis of real facts, not blind adherence to economic dogma that is repeated over and over in an effort to actually avoid the facts.

    So, communication between two blind men about what the color red looks like does not mean that communication actually describes what the collar red looks like even though they proclaim it does.
    Jul 21, 2015. 10:55 AM | 2 Likes Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    "Wages don't rise, we'll say they're "about to", "

    This is another example of Fed incompetence. Even the Fed's own research shows that rising wages contributing to inflation is a myth, yet here you have the Fed committee regurgitating this myth as if it is fact.

    As I said, the Fed cannot do what it claims it can do. As such, you have to use reality to figure what will happen when they act, instead of what they say will happen.
    Jul 21, 2015. 10:50 AM | 2 Likes Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    So, what we have now is a one off, at least up to this point. That helps, but as you say, before this, they haven't given such specificity. As such, its hard to believe them.

    Thus, we have to fall back to the basic principle that Fed officials are bunglers, not because they are nefarious, but because they hold to false ideologies. They really don't know the forces they are dealing with. As such, we can count on one thing - they will make mistakes.

    Our job is to guard ourselves from these mistakes. We do that by accepting the world for what it is, not what some modeler says it is. So, in keeping with that, an increase in the DR is, in general, risk-off. Now, there are other factors that can offset the DR increase, and we will have to keep an eye on them as well. Its also important to remember the question of volume. A 25 bps rate increase is indeed risk-off, but it is not as risk-off as say a 500 bps DR increase. For instance, the DR increases from 2004 to 2007 resulted in the S&P falling out of bed in 2007 until it bottomed in Mar of 2009. By then the Fed had reversed its asset price busting policy enough to start the reinflation via DR decreases and the first round of QE (shades of Milton Friedman's fiddling with the hot and cold). [The Fed crashed the stock market in 1929 in a similar way, and then the Progressive/Interventi... Hoover and FDR gave us the Depression.]

    So, Yellen may indeed raise the DR as she claims, and it may be this year, but let's not forget the big picture, and that is that the Fed does not know what it is doing, thus we have to dispel with any Fed worshipping ideologies and be pragmatic.

    In general long, sustained increases in the DR bring on recessions. Other factors mitigate this, but in general, DR increases are risk-off.
    Jul 21, 2015. 08:13 AM | 1 Like Like |Link to Comment
  • Rising Wages Will Not Lead To Inflation [View article]
    "One of the greatest misconceptions of our time is that higher wages lead to higher inflation."

    Good to see other discovering this.

    More on this point.
    Jul 20, 2015. 09:22 AM | 1 Like Like |Link to Comment
  • The Future Of Greece, The Euro And The Impact On Global Markets [View article]
    But it does mean we will be revisiting this issue again in several months, with more fear trade to follow, because each time the problem will get bigger and bigger.

    Combine that with Fed tightening, ECB QE supposedly ending in 2016, Ocare ramping up in 2016 (along with Dodd Frank), and the bias is starting to lean heavily towards risk-off in 2016. Its a little early to tell yet, but we could be looking at 1900 to 2000 on the S&P and the 10 yr in the 1.60 to 1.90 range. We will have to see the size of the risk-off, so again, its a bit early to tell.
    Jul 20, 2015. 09:13 AM | Likes Like |Link to Comment
  • The Future Of Greece, The Euro And The Impact On Global Markets [View article]
    " is that the Southern states were primarily agrarian producing commodities (cotton and tobacco)"

    Right, because like all gov subsidies (aka the maximum wage regulation for the slaves) is that it provides disincentives for innovation. As such, the South was provided with disincentives to grow and diversify their economy. We see the same thing in autocratic countries with massive oil reserves. The gov and its cronies live like kings, while the rest of the population still lives in the stone ages.

    So the South stayed with commodities and became dependent on them not as the cause itself but as a symptom of its wage regulations on slaves.
    Jul 20, 2015. 09:09 AM | 1 Like Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    The other thought is that they will raise the DR, just so they have something to lower. The thought is that the Fed is afraid of more QE because it is politically distasteful (like an admission that the Fed doesn't have the power to grow the economy the way the ideologically driven Fed worshippers say it can), so they want to shy away from QE and look to do more with the DR. Thus, if they can raise it, say 50 bps, then they have something they can use later without printing via QE.
    Jul 20, 2015. 09:04 AM | 1 Like Like |Link to Comment
  • Summary Of My Post-CPI Thoughts [View article]
    "ideologically contrived reason to doubt what that means?"

    Or better yet, is there any ideologically contrived reason to believe the Fed can do what it says it can do. Remember, even Robert Owen himself said it was the gov's job to stop economic downturns, and even William G. McAdoo said the Fed would end all economic downturns. Perhaps it would be better to stop reading ideologically driven textbooks and read some real history to get a grasp of what the Fed is and what it actually does if you don't know who Owen and McAdoo are.

    The problem with the Fed is they can't do what they say they can, so what they really do is mess with asset prices (remember a bond price is affected by its yield). So, given that, the problem with Fed jawboning is that they are guessing. Thus, when they say they will raise rates when the conditions are right, nobody really knows what that means. Remember Yellen's "considerable time". So, people are left to guess more on the timing than whether they will or won't. The fact that central bankers will always print is not the issue, its the timing of such printing that really matters. At the end of the day, they believe a false religion, so we can certainly count on their making mistakes.

    What we have shaping up is risk-off produced by the central bankers reigning in the rate at which they are expanding. Yellen is signaling that the Fed is about to slow its money printing, and the ECB is supposed to stop in Sept of 2016 (maybe sooner). Add to this more taxation from Ocare and Dodd Frank in 2016, and that all shapes up to a bias for risk-off.

    Now, its too soon to tell how much risk-off based on Fed vagueness (pushing aside all ideological worship of the Fed), but if we get a couple of 25 bps hikes and the ECB shrinks back to its pre LTRO and QE levels, then we could be looking at sub 2000 on the S&P and the 1.60 to 1.90 range on the 10 yr.

    For the ideologically driven Fed worshippers, I would suggest selling all long bonds now and plowing all that cash into equities. For the pragmatically minded, I would suggest waiting for a few more months to do the opposite, assuming of course, that you goal is to market time.
    Jul 20, 2015. 08:59 AM | 1 Like Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    Good link.

    "Hoover was far from being a bloodless conservative"

    I've discovered that much of what we have been taught as history is pure myth. Indeed, the idea that Hoover was a laissez faire guy is a myth that managed to get legs and now we believe it as fact.

    "The American Construction Council (A.C.C.), formed in May 1922, was the first of numerous trade associations created in the 1920s, devices used to raise prices and reduce output. The original proposal and the drive for the council came from Secretary of Commerce Herbert Hoover, and the council operated under the leadership of Franklin D. Roosevelt, then just beginning his Wall Street career following his service as Assistant Secretary of the Navy."
    Jul 9, 2015. 03:15 PM | Likes Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    "In capitalism, the spoils eventually belong to the most dominant predators"

    Capitalism is a system of property rights. As such, I can't take your stuff and you can't take mine. I can't force you to do anything, and you can't force me to do anything. As such, the only opportunity for us to engage is via voluntary cooperation.

    A "predator" is a rights violator. As such, "predator" only applies when capitalism is being violated, like when a gov passes a law that says you have to use their money, and then they devalue that money to make themselves richer while making you poorer. He who gets the money first, before the inflation, gets the benefit at the expense of the poor smuck who gets it last.

    Capitalism is expressed in the basic accounting equation.

    Assets = Capital

    The assets on the left are the real things that people use to make their lives better and the capital on the left is the expression of ownership rights in those assets.

    The reason that Capitalism is so maligned and improperly defined, is because the real predators in society that want to steal must first make that theft more acceptable by destroying the concept of property rights. This is why they must also distort the term "rights" in order to break its link with property and the basic accounting equation.

    The only alternative to Capitalism, where in people must respect other people and their property (aka peace and prosperity) is tyranny, where predators violate other people and their property thus leading to the paradigm where the rich get richer and the poor get poorer.

    Thus, if regulation via things like the Sherman Antitrust were to end monopolies, then how was it deregulation ended AT&T's monopoly?

    The real definition of monopoly, was a state license. A king granted a favored crony a monopoly for a particular trade like silk or spices. Then the king used his monopoly of force to punish anyone that tried to compete. The same is still true today. For instance, the Sherman Act was little enforced until T Roosevelt used it to go after Rockefeller. He did this not from his own desires, but because he was basically a kept man for JP Morgan.

    The Federal Reserve wasn't created to get even with guys like Rockefeller, it was guys like Rockefeller that pushed for the Fed, because that would protect his interests at the cost of the general public. Aldrich's (of the Aldrich Vreeland Bill) daughter married John Jr. William Rockefeller was good friends with Sec of Treas Lyman Gage, who was calling for a CB in the early 1900s.

    The story of gov regulation isn't one of consumer protection, its one of business protectionism by those that manage to capture gov.
    Jul 9, 2015. 02:26 PM | 2 Likes Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    "Where would we be without environmental protection laws"

    How is polluting your neighbor's property part of capitalism's system of protecting your property? Capitalism still protects you from pollution. However the EPA is a right's violator where arbitrary decisions are made by unelected bureaucrats generally responding to whatever business has the most incentive to capture the agency in order to put their competitors out of business. The result is higher prices and lower supply, the exact results of a cartel, which is supposedly part of evil business, which is supposedly what the EPA and Sherman Anti Trust Laws were supposed to prevent.

    Interesting point on the Sherman Anti Trust. Did you know John Sherman had a famous brother? Here he is.

    Now another interesting think about Republicans of that era (and even today) with regards to supposed "big business" and "monopolies".

    "Feelings of the American public ran high as the McKinley Tariff quickly followed the Sherman Antitrust Act which ostensibly clamped down on monopolies, but turned out to be pretty ineffective. "

    "Many Americans had been led to believe that the Sherman Act addressed the damaging effect of the monopolies on prices and therefore consumers. When the McKinley Tariff was passed, only 3 months later, prices rose and people felt duped by the Republican politicians."

    So, if the Republicans and Sherman were so concerned about the higher prices and lower supplies that the so called monopolies were creating and thus punishing consumers, why were the so ready to impose tariffs that did the same thing?

    The "willy nilly" aspects of history we have been led to believe are really just propagandist myths perpetrated by people looking to engage in protectionism and cartels that the free markets would not afford them. However, they can't come out and say this, so they have to do these things in the name of the consumer or the public good.

    So there really isn't anything proven about it. In fact the opposite is true, and what we have been led to believe as "proof" is really concocted myth by those who needed gov to give them the protectionist measures that the free market would not.

    I would suggest reading Gabriel Kolko on this. He was a statist that did some research that wound up back firing on him.
    Jul 9, 2015. 01:41 PM | 2 Likes Like |Link to Comment
  • The Fed's Window For Hiking Rates Continues To Close [View article]
    "The U.S. necessarily has regulated capitalism, not laissez-faire capitalism."

    I view this differently. I don't see the need to provide modifiers to capitalism. Capitalism is simply a system of property rights. To establish those rights, they must be protected. The reason they must be protected is because other humans will violate them. In other words, people must produce or steal to survive. The problem with stealing is that it diminishes the inclination to produce, and since our goal is abundance, our goal is maximum productivity.

    To achieve maximum productivity people must be free from force (aka theft). The product in the market that makes them free from force is gov. The dilemma we have now is that the product of gov is price blind. As such, it becomes corrupted. Instead of being the product that protects us with its force, it becomes the product that violates us with its force. This is the threat of gov. Its force makes it attractive to thieves. As such, the check against the gov product is the same as it is for all other products in the market, the right to refuse. Since govs have used their force to practically eliminate the right to refuse, the market check on gov becomes muted.

    Hence Greece imposes capital controls. Its gov has become an agent of theft. The theft has limited their productivity, and thus the tendency is for people and their capital to leave or else be consumed. The slaves in the South had the same dilemma. Their capital (their bodies) and any capital they might create with their bodies (their income) was not protected by gov, but rather violated by gov regulations (subsidies - minimum wage laws for slave owners). As such, the slaves attempted to flee, which is why they had to be chained down, just like the capital in Greece.

    Thus, the point of gov is to be the product that supports capitalism by using its force to protect property rights, and property rights are the genesis of all other rights. Then the check on gov to make sure only those govs that protect capitalism are rewarded, is that people can easily choose one gov over another.
    Jul 9, 2015. 12:43 PM | 1 Like Like |Link to Comment