The knee-jerk reaction to the conclusion of the press conference by Federal Reserve Chair, Jay Powell, was positive for the equity markets, as they closed in the green after trading in the red for much of the day. So for the time being, a pot of gold was given to the markets. Now one day does not make a trend and this could easily reverse. However, when the Fed is seemingly committed to keeping interest rates low until at least 2023 and probably longer if they can, they are sending conflicting signals. On the one hand, they want to note how resilient the economy is and how it is likely to grow at a solid rate this year; and yet on the other hand, despite record high equity and real estate markets, an economy they claim is resilient and growing, still somehow needs the Fed to keep interest rates at record lows for the next few years at least?! Something does not add up. This is no surprise, as the Fed is always talking out of both sides of its mouth. They are also well aware that markets nor the economy like higher interest rates and yields on notes and bonds. Recall what occurred during Q4 of 2018 as the Fed attempted to reduce their balance sheet and raise the Federal Funds Rate. All it took was a Funds Rate of 2.4 percent and a 10-year Treasury note slightly above 3 percent to bring equity markets down 20 percent. Now, with the economy weaker, and trillions of dollars more in debt, even lower rates and yields will prick this bubble. However, such increases are exactly what is needed to help rid the markets of malinvestments and zombie corporations. There is no easy way out of this quagmire.
Since the GFC and the implementation of QE, the global economy has been living through the largest economic experiment ever conducted and it also happens to be the biggest wealth transfer in human history as well. Policymakers and central bankers are aware of the fragility in the system. This is evidenced by their actions of attempting to keep interest rates low and to put downward pressure on yields, should they begin to rise. They know the patient, the economy, is weak. But they cannot state this obvious truth because it is they who would be to blame for the mismanagement of the economy and financial markets. So instead of leadership and accountability, we shall have cowardice and more of the same implementation of one asinine policy after the next. How will this end – in blood and tears. When will this end is up for debate. But if yields and interest rates continue to climb higher, and one nation after the next continues to protest and riot because of the now brutal intersection of economic, political, and societal problems, then the end of this economic charade may be fast approaching. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Markets #EndTheFed #bananarepublic #FoodPrices #FireCongress #USA #Liberty #Leadership #Gold #Silver #Bonds #Debt #Commodities #Protests
It is highly evident that the sunlight between the Treasury Department and the Federal Reserve no longer exists. The merger has been underway for years and is nearing its completion. Talk about the United States turning into a banana republic, well here it is. If you thought last year was a wild ride with respect to fiscal and monetary support, buckle up, because you ain’t seen anything yet. We know that Congress (Democrats), the Treasury Secretary, and Fed Chairman, are all hand-in-hand when it comes to the $1.9 trillion spending bill proposed by the Democrats and Biden administration. The argument is all about returning to full employment and how the passage of this bill will help to secure that goal. Furthermore, the Fed is completely behind it and willing to finance the deal (because we do not have the money), also arguing that full employment is their goal as well and how the Fed will remain accommodative until that end is met. Recall that one of the mandates of the Fed is to achieve and maintain full employment. The other is to achieve and maintain price stability.
This is just the opening salvo for what is going to be fiscal and monetary authorities gone wild. The $1.9 trillion is more about transfer payments, unemployment benefits, assistance to state finances, Covid-19 programs, and perhaps increasing the minimum wage to $15 per hour than anything else. This means that the Democrats will likely continue onward with the spending spree and attempt to tackle healthcare, the environment, and infrastructure. Some of these measures will likely pass and the cost is unknown, but it will be in the hundreds of billions, if not trillions in aggregate by the time the dust settles. The Congressional Budget Office is already predicting a national deficit north of $2 trillion for this fiscal year alone and this figure does not take into consideration any of the above spending measures.
Speaking of jobs, for the week ending 6 February, 793,000 Americans filed an initial jobless claim, which was above market expectations. The prior week’s figure was revised upward by 33,000 to rest at 812,000. For all programs, for the week ending 23 January, 20.4 million Americans continue to receive some form of unemployment insurance. This is a week-over-week increase of nearly 2.6 million. This would give us an unemployment rate closer to 14.3 percent as opposed to the official rate of 6.3 percent. We are nearly one year into the lockdowns and restrictions, and we continue to witness this type of carnage in the jobs market. This is after several trillions of dollars were flushed into the system. So what makes $1.9 trillion so magical if several trillion dollars could not stop the damage?
The Federal Reserve’s balance sheet hit a new all-time high at $7.44 trillion dollars. Some $30 billion above its previous high. With respect to M1 and M2 money stock, both of these measures are near their respective all-time highs, which were hit within the last few weeks. These numbers will continue higher as fiscal and monetary policies continue their expansion. This is by definition inflation and will prove utterly destructive to the financial system, and more importantly to the real economy. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Debt #Markets #Fraud #Fake #FireCongress #Liberty #USA #Inflation #Gold #Silver #Jobs #Bailouts #Spending #Recession #Depression #Protests #bananarepublic #EndTheFed
Jerome Powell, the Chairman of the Federal Reserve, made some comments this afternoon, and one in particular pertained to stating that the “real” unemployment rate is closer to 10 percent. The BLS just released the jobs report last Friday and informed us that the official unemployment rate is 6.3 percent. This is quite the discrepancy. So what gives? The Kapital News believes this is the first of many one-two punches to be thrown by Treasury Secretary, Janet “Dingbat” Yellen, and Jay Powell. Recall that Yellen was the former Chair of the Fed. This past weekend, Yellen made comments supporting the $1.9 trillion spending package being proposed by the Biden administration, arguing that its passage will help return the US economy to full employment. This is hogwash. Nevertheless, we now have Mr. Powell arguing with official government statistics, which is highly uncommon, and also arguing that monetary policy will remain accommodative until we once again reach full employment. Clearly, something is afoot. Especially when one considers how important the “independence” of the Fed is in the eyes of Fed officials. They always note how important it is for the government to stay out of the business of the Fed. So why is the Fed so concerned with the policies of the government? Wouldn’t this invite political interference into their decision-making?
The Kapital News believes that the Federal Reserve along with the Treasury Secretary, know that they are trapped. They know that their fiscal and monetary policies have run their course and are at their end. But they also do not want to take any responsibility for their actions since the GFC and so they would simply rather continue with the same policies as opposed to admit their mistakes and change course. This pride or perhaps complete ignorance and incompetence has proven to be and will continue to be extremely expensive and destructive to the economy. The inflation that has thus been generated will continue to make its way throughout the global economy. The first to be affected has been and remains financial assets, but inflation has also been hitting healthcare costs, commodities, and food. It is in these latter groups where the most destruction will occur. Most people do not own financial assets, but everyone needs food and energy. Even with respect to financial assets, as prices go higher for equities and housing, it prices much of the population out of these markets because they cannot afford them. It is one thing to be in a position where one cannot afford equities and/or housing. It is a completely different situation when they cannot afford their utilities, transportation, medical care, and food. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Jobs #Fraud #FakeMarkets #Fake #Bailouts #FireCongress #bananarepublic #EndTheFed #Recession #Depression #Inflation #Gold #Silver #USA #Liberty
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
So here we have it! It’s vaccine Monday once again and right on cue, AstraZeneca comes out and announced the results of their vaccine’s efficacy. This is now three Mondays in a row – Pfizer, Moderna, and AstraZeneca, respectively. However, today’s news was further bolstered by the announcement that former Chairman of the Federal Reserve, Janet Yellen, is getting the nod to become the next Treasury Secretary. Of course she will need to be confirmed by the Senate, but since she has been confirmed before, there’s really no reason to think why she won’t be confirmed again. Now, The Kapital News can come up with trillions of reasons as to why she should not be confirmed, but you get the point.
The stock market loved this news and why wouldn’t that be the case? Equities rose considerably under the Yellen-Obama tenure. This is thanks to record low interest rates, and quantitative easing being the norm for the past decade plus. This monstrosity of a policy continues and now with a one-two punch at Treasury and the Fed – what could possibly go wrong? Again, The Kapital News can provide a trillion scenarios, but you get the point in that the addicts on Wall Street will continue to get their hit and in larger doses. This is destroying, if it hasn’t already killed the patient, with the patient being that of the US economy. For that matter, it’s really the global economy since these actions are being undertaken in an orchestrated manner.
What’s so sad of course, is the fact that tens of millions of Americans are still going to food banks, collecting unemployment insurance, facing eviction(s), and massive uncertainties ahead, yet global equities continue reaching new heights. This is massive fraud and contributing greatly to wealth and income inequality. This is a recipe for political, social, and economic disaster because this is not the result of production, productivity gains, and prudent valuations. No, this is at the hand of easy credit and trillion dollar liquidity injections. In short, this is a first world banana republic and the funny money is inflating financial assets into the stratosphere. Just wait until this is reflected in commodity prices and general consumer prices. The inflation is already here – now await it’s truly destructive force and the coming stagflation and potential hyperinflation. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Gold #Debt #Silver #Recession #Liberty #Revolution #EndTheFed #BananaRepublic #Depression #Bailouts #USA
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.
