Today’s title has a couple of meanings. First, since we’re a first world banana republic, we have no checks to write because there is no balance in the Treasury to cover them. Further, the only way we really show a balance in the general fund is because we print the money like it’s going out of style – because it is. Then of course, the United States government is supposed to be a system of checks and balances. But how can our system truly function as such a system, if there exists a central bank, the Federal Reserve, that is accountable to no one? Presidents, Representatives, and Senators can be voted in and voted out by the people. The President can override Congress with a veto. Congress can override the veto should enough votes exist. Congress can impeach and remove a President. The Supreme Court can rule actions and legislation to be unconstitutional. Yet, if and when central bankers set interest rates and embark upon other policies, there is no one who can overturn their decision. These “officials” are not elected, and thus cannot be voted out by the people. So where is the check and balance to their power? This is exactly the problem.
Now, with President-elect, Joe Biden, beginning his transition into the White House, he is starting to pick his cabinet. Continuing with yesterday’s discussion, we highlight his pick of Treasury Secretary of Janet Yellen. Yellen was the former Vice Chair and Chairman of the Federal Reserve. She was very a much a part of implementing and overseeing quantitative easing. She is also an advocate for granting the Fed the ability and authority to purchase equities outright. While she makes such a claim in a veiled way – make no mistake that she believes this is something Congress should consider doing – granting the Fed such powers. She, like many of her predecessors and successors, are destructive to the United States of America. Their policies are the root of our economic malaise in conjunction with actions taken by our government. It has been and remains to be a great concern that these policies are going to become even more extreme, and thus worsen and add to the damage. It’s a revolving door in Washington, DC and this is further evidence that our elected officials care not about the health of our country. The people need to wake up before it is too late. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Bailouts #Markets #Jobs #Debt #USA #Inflation #Recession #Depression #Gold #Silver #EndTheFed #BananaRepublic #Liberty #Revolution
As the saying goes, power corrupts and absolute power, corrupts absolutely. Concentrated and centralized power amongst the few is the antithesis of the United States of America. Nevertheless, we have before us a handful of powerful men and women on the global stage that have the power to move trillions of dollars worth of financial assets and markets with just a simple word or phrase. If this isn’t absolute power, then The Kapital News doesn’t know what is. Yet again today, we witness John Williams, President of the Federal Reserve Bank of New York, give a speech and make remarks during a Q&A session whereby he “hinted” that the Federal Reserve should slash interest rates. Saying it’s better to be preventive than to wait for the crisis to happen. Wait?! Aren’t we told by the President on a near daily basis that this is the greatest economy is US history – so why throw around the word crisis or problem or recession or even slow-down? The addicts on Wall Street took this as positive news as the junkies are set to get their next fix after crying about it – even though stocks are at all-time highs? Is this making any sense to anyone? Yet, only a few hours later a spokesperson from the Federal Reserve came out and said, the statements from Mr. Williams does NOT represent what the FOMC will be doing at the end of this month – referring to the Fed’s meeting on July 30-31 to decide interest rate policy. These members of the Fed are poor economists and they’re even worse at communicating. And by all indications, they want to continue pumping the patient (i.e. the economy) with more of the disease – lower interest rates and QE. Toto – I don’t think we’re in Kansas anymore. Buckle up! We’re Fed Up! #EndTheFed #WakeUpAmerica
It’s the talk of the town that the Federal Reserve is all but 100% certain to be lowering interest rates at the end of July. However, the Fed is still engaged in quantitative tightening, QT. According to some of their own studies and analysis by outside parties, QT also has the effect of increasing interest rates. So will the Fed also call an early quits to QT in July? If not, then are the effects of a rate cut coupled with a continuation of QT a neutral or “non-move” by the Fed? It appears that the Fed doesn’t know or at least it hasn’t said much about this issue. At current expectations, the Fed is to wind down QT in September – removing up to $50 billion per month from their balance sheet. They have been doing so for well over a year and so while the official Fed Funds Rate is range bound between 2.25 – 2.50%, with the add-on effects of QT, we’re more likely in an actual range of 3.75 – 4.25%. Following the analysis by The Kapital News, it takes a lower Fed Funds Rate to burst/prick and ever-increasing bubble. Therefore, either scenario, the implicit higher rate or the official rate has already done its damage. It’s now simply a matter of time before the full effects are felt. Also be mindful that the true negative effects came from low interest rates and QE. We will soon be witnessing this global debt coming home to roost and a 25 or even 50 basis point drop, is not going to cut it. Stay tuned.
More bad news for Boeing as more countries tell their airlines to ground the Boeing 737 Max 8. Shares of the mega-cap company continued its descent and took the Dow with it – who will pick up the slack as markets are NOT allowed to go down anymore – it’s just up, up, up. Also, why is the Fed out saying all is well – is it?!
Ep. 25B - Three Stooges on 60 Minutes + Market Mayhem
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The Three Stooges are back! Sadly, we don’t mean Moe, Larry, and Curly, but rather Chair Jerome Powell, Aunt Janet Yellen, and Uncle Ben Bernanke. Why were they out? Is everything ok or is this an attempt to calm the markets? Then we have a small beat in retail and markets rally 2%, seriously!
It was only a couple of weeks ago that the Chairman of the Federal Reserve gave his scheduled press conference following the Federal Open Market Committee’s (FOMC), meeting. As was broadly anticipated by the markets, the Fed decided to take a “wait-and-see” approach to the overall economy and thus the committee’s actions regarding interest rates and the Fed’s balance sheet. The stance on being patient was most welcomed by market participants. It is the opinion of The Kapital News that the market is akin to a drug addict and the Fed – the drug dealer.
Only a
couple of months ago, the major indices of the US markets entered correction
territory as defined by a 10% decline. This was then followed by a further
decline that put these indices in bear market territory or reaching a 20%
decline. Well it should have came as no surprise that the addicts, coming down
from their highs, would throw a tantrum, a hissy-fit, whatever you want to say,
to get the attention of their dealer – they sure succeeded! Not only did the
Fed come under pressure from the markets, but also from President Trump. There
were immediate calls for the Fed to reverse course or at least stop what they’re
currently doing. So, what is or was the Fed doing?
For well
over a year, the Fed has been discussing increasing the Effective Federal Funds
Rate from its extreme policy of low interest rates coupled with quantitative
easing (QE). This interest rate is used by banks for overnight lending
purposes. Banks with excess reserves will lend money to banks in need of
additional liquidity in order to satisfy their daily reserve requirements. This
rate has been zero-bound since 2008 during the financial crisis. This also went
by the term ZIRP or Zero Interest Rate Policy for those “in-the-know.” It has
gradually been increasing and we stress the word gradually, for the past couple of years. It currently stands at
2.27%. Even though the Fed has been broadcasting for some time now that it
intended to “normalize” interest rates as well as to continue to reduce the
size of its balance sheet – the markets declined rapidly during Q4 of 2018.
This now
raises serious questions for the broader economy at large and the financial
markets. What credibility does the Fed have? Will the Fed do a 180 and cut
rates and embark on a new leg of QE? If the economy is so vibrant, then why do
minute interest rate increases of 25 basis points negatively shock the markets
and economy? If the economy is so strong, then why is the Federal government
running near $1 trillion deficits? These questions need to be asked and they
need to be answered!
With
respect to their credibility – it is the opinion of this author that they have
NONE!!! We’re supposed to believe that a team of 200 PhD economists at the Fed,
in addition to any analyst the Fed wants input from, that they all got it
wrong?! They broadcast that the economy is doing well and thus it is
appropriate to increase rates and continue with their balance sheet run-off and
then BAM, markets decline, the economy is now not so vibrant, and the global
economy is suddenly slowing. They didn’t see this coming?! What the hell are
they looking at?! Or does it become more of a question between who does the Fed
work for, which leads to the title of this article.
During
his press conference, Chairman Powell made it clear that the Fed works for the
American people. This commentary simply asks, What Americans, Mr. Powell? In
our recent podcast, A
Stock Market Divided Cannot Stand, we stated that the Fed is not
helping Americans who are attempting to save. With low interest rates, savers
are not earning any interest on what savings they may have. This has been true
for a decade of significantly flawed monetary policy. Economies are not built
on the backs of over extended consumers and over leveraged banks and
corporations, but rather on the savings and investments of market participants.
We continued with older Americans and how many of them live on fixed-incomes,
and in some instances, a very-fixed income. The mechanics of QE is by
definition an inflation generating process. Once this liquidity makes its way
through the economy, the effects of this inflation (money-printing) are felt.
This has adverse effects, especially on older Americans on fixed incomes as their
cost of living outstrips their rise in income – should they even experience an
increase to their incomes.
Their policies of ZIRP and QE are fundamentally flawed for middle income and lower income Americans. Yet how have these policies faired for the wealthy, corporations, banks, and the government? Well you guessed it – they have done extremely well! The markets have reached new all-time highs and given the wait-and-see stance by the Fed, they may make even greater highs this year. The wealthy who own the majority of financial assets – stocks, bonds, real estate, have seen tremendous gains to their portfolios and net worth. This author does not demonize success, for he is an ardent proponent of free market capitalism. Yet, money printing is not capitalism! Therefore, these gains to the wealthy, the corporations, and the banks have come at the expense of middle- and lower-income Americans. Corporations have used this funny-money to engage in financial engineering never seen. One such activity relates to share buybacks. The amount of share buybacks has gone to increase earnings artificially as opposed to organically, since some of this activity has occurred due to access to cheap money. The same holds true for the increasing of dividends and leveraged loans, which are loans that will be used to pay-off other loans. Many of these financial gimmicks can translate into higher stock prices – and they have. This then translates into higher compensation for C-suite executives as their earnings may be tied to stock price performance. Starting to get the picture?
Now onto how the government benefits. The US government’s stated national debt is nearing $22 trillion. This does not include the unfunded liabilities that increase this number several times. If one were to look at the amount the US pays on interest payments alone, which is over $300 billion per annum, one must then ask, how much longer can this be sustained? Well, so long as the Fed keeps interest rates low and/or returns to another round of QE, which is the Fed purchasing Treasuries, then Uncle Sam may be able to keep this charade going. However, if the Fed were truly concerned with macro-events, then they should be ringing the alarm bells telling Congress and the President that this is unsustainable and public finances must be dealt with. They do not do this because this would require someone to be an adult in the room and to stand up and be a true leader. We do not have such leaders in our current government nor have we for many years. The problem this creates is two-fold. First, it continues to kick the proverbial can down the road and thus these problems will only get worse and that much more difficult to resolve. Secondly, there does not appear to be any concern that interest rates may take on a mind of their own. In other words, markets may look at the financial health of the federal budget, or lack thereof, and say, in order to lend money to Uncle Sam, we’re going to need a higher return. Therefore, despite the efforts by the Fed, they may one day soon fall on deaf ears. When one looks at Treasury rates, especially the 10-year Treasury, it must be understood that many other rates, such as mortgages are closely linked. If rates were to rise either by decree from the Fed, or worse by the market, the downstream effects will make 2008-2009 look like a walk in the park. If rates remain low and/or the Fed should do a 180 and lower rates and/or embark on a new round of QE, these problems will only get pushed further down the road. Once these debts come due, this too will make 2008-2009 look like a walk in the park. Damned if we do and damned if we don’t – great going Fed.
We have done this to ourselves. Living beyond our means and not holding ourselves and our political leaders accountable has serious and significant costs. Soon, we’ll all be paying the price one way or the other. A return to free market capitalism is the solution, yet the common voices and the loudest voices call for policies quite the contrary. The United States should have the best economy in absolute terms, not in relative terms – the best-looking girl at the dance isn’t good enough. It’s time to wake up and demand change or we’ll be awoken from a nightmare only to realize, we’re not dreaming.
Following 7 weekly gains in the US indices, how much further do we have to go? Presidential tweets, Fed speak, and rumors of successful trade talks have gotten us here. Will they take us to further highs or are we in for a rude awakening? We discuss…
Ep. 3B - Rate Cuts?! Musical Chairs at the Fed: Who is in Charge?!
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From a policy of monetary tightening to a pause, to now talks of a possible rate cut, what is the Fed doing?! Do they know?! Who is in control?! These markets are fake and these kind of announcements and headlines do NOT serve the people well. Find out what they’re saying now!