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Wednesday, September 18, 2013

Asset Purchases Are Not On A Preset Course

Or so the Fed says:
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.
I read this as no taper this year at all. Unless the administration succeeds in starting a war (the actual opponent is irrelevant; the administration just needs a war), the FOMC will wait to see how federal fiscal policy develops before deciding whether to increase asset purchases.

I believe the Fed may be discussing ways and means of buying assets but lending them back to the banks to serve as a hard collateral base. There's no technical reason why they could not do this, and they may have to do it if they continue their asset purchase program much longer, or increase it. 

Depending on what Congress does, the Fed may increase its asset purchases next year. 
 

Comments:
The tapering talk has been Shot Down in Flames.
 
In fairness, it's the Fed who started the tapering talk.
 
Remember last decade when all the talk was when ZIRP would end? That's all it was -- talk.

ZIRP/QE were always one-way tickets to currency destruction.

{cue "Hotel California"}
 
This means nothing to the average American whose
Income is 8.3 percent below the level reached in 2007…

http://i.imgur.com/GpUEDtj.jpg

http://tinyurl.com/lxxfhv4

The US governments deliberate off shoring of it’s industrial base via free trade agreements and tax laws continues…

“Honeywell has cut its U.S. workforce by 5,000 positions to 52,000 since 2007 while adding 15,000 employees abroad, for a total of 80,000 outside the country.”
“Eaton said in a petition that it shuttered its hydraulic-cylinder plant in Decatur, Alabama, in July. Scott Schroeder, a spokesman for Dublin, Ireland-based Eaton, said consolidating production boosts efficiency.”
“In Tempe, Arizona, contract electronics manufacturer Jabil Circuit Inc. (JBL) will eliminate about 500 positions with a factory closing. We are in the process of moving several assemblies to other Jabil facilities in Mexico and Asia in order to reduce labor costs and meet our customers’ pricing expectations,” the St. Petersburg, Florida-based company said in a Trade Adjustment Assistance petition. Beth Walters, a Jabil spokeswoman, said by e-mail that the plant will close within a year.”

http://tinyurl.com/l8oembk

This is the only guy I know who said there will be no tapering:

"The FEDs unwind of QE: Messy, Misunderstood and likely NOT now."

http://www.riskdimensions.org/the-feds-unwind-of-qe-messy-misunderstood-and-likely-not-now/

"The past week’s move in global currencies coupled with the correlation spike highlighted in this report, suggest that the credit crisis has morphed into a currency crisis. If this is the case, things are going to get tribal. If you think velocity of money is slow now, markets that go tribal bring everything to a halt."

http://i.imgur.com/s2EW0f2.png






 
This means nothing to the average American whose
Income is 8.3 percent below the level reached in 2007…

http://i.imgur.com/GpUEDtj.jpg

http://tinyurl.com/lxxfhv4

The US governments deliberate off shoring of it’s industrial base via free trade agreements and tax laws continues…

“Honeywell has cut its U.S. workforce by 5,000 positions to 52,000 since 2007 while adding 15,000 employees abroad, for a total of 80,000 outside the country.”
“Eaton said in a petition that it shuttered its hydraulic-cylinder plant in Decatur, Alabama, in July. Scott Schroeder, a spokesman for Dublin, Ireland-based Eaton, said consolidating production boosts efficiency.”
“In Tempe, Arizona, contract electronics manufacturer Jabil Circuit Inc. (JBL) will eliminate about 500 positions with a factory closing. We are in the process of moving several assemblies to other Jabil facilities in Mexico and Asia in order to reduce labor costs and meet our customers’ pricing expectations,” the St. Petersburg, Florida-based company said in a Trade Adjustment Assistance petition. Beth Walters, a Jabil spokeswoman, said by e-mail that the plant will close within a year.”

http://tinyurl.com/l8oembk

This is the only guy I know who said there will be no tapering:

"The FEDs unwind of QE: Messy, Misunderstood and likely NOT now."

http://www.riskdimensions.org/the-feds-unwind-of-qe-messy-misunderstood-and-likely-not-now/

"The past week’s move in global currencies coupled with the correlation spike highlighted in this report, suggest that the credit crisis has morphed into a currency crisis. If this is the case, things are going to get tribal. If you think velocity of money is slow now, markets that go tribal bring everything to a halt."

http://i.imgur.com/s2EW0f2.png






 
MOM,

In fairness, it's the Fed who started the tapering talk.

I would not argue otherwise. They shot down their own talk.
 
Jill - real the previous post. You're singing to the choir, honey.

There isn't going to be any inflation until household incomes can rise, because we can't buy stuff.

Oh sure, the Fed can raise asset prices, but while that boosts the inflation number in the short term, when households come up cash short they just ratchet back their lifestyle in the coming months and year.

I did point out in a recent post that I didn't expect the Fed to taper because of the situation. They're scared to taper.
 
The market and the economy are like cocaine addicts. Can't live without low interest rates. The Fed is just the friendly dealer who keeps giving the fix.

Of course, like most addictions, this will not end well. I wish I knew what to do. Stay nimble and ride the short term trends looks like the only way to make a bit above what treasuries pay.

Gold glitters and William Devane tells me it's the way to protect my assets........ except they can always make it illegal to own. Then what do the gold bugs do?

It is a conundrum.
 
I think this Fed statement was pretty much the Board of Governors throwing up their hands and shouting "wheeee" at the beginning of the long roller-coaster ride down.


Jimmy:

I think the economy, and even the market, would probably be better off if rates were allowed to rise. Pension funds and retirees that require income are hurting badly right now. Who knows--maybe banks would even lend to business if they could make money at it. It's the Treasury that can't handle higher rates.

But yeah, I've no idea what to do with money going forward. My guess--it's only a guess, and if you saw my past investment results you'd probably stop reading right now--is that non-liquid investments (like small business equity and income-producing real estate) are the only way to go.

Anything liquid, particularly tax-deferred accounts, is likely to get hoovered up by government when the crisis hits.

 
Neil - yep. I think the Fed will double down before they lighten up.

As to what to do with our money, that's a highly individual question. If you bought into longer Treasuries last week you just made a very nice profit.

The real problem facing the baby boomers is how to manage aging when you see your country going bankrupt.
 
Policy error. Big one.
 
The mistake is in thinking the tapering will be done with the expectation of slowly, eventually ENDING QE.

The Fed will taper by a token 10-15%. From 80 billion to 65-70 billion. I could see the Fed getting down to 40 billion before Bernanke leaves, but at this point the Fed is Congress/Treasury's bitch and will monetize all wasteful spending going forward.
 
is likely to get hoovered up by government when the crisis hits

More likely "roosevelted" up.
 

CK: hahahahaha!

 
MOM,

NYTimes brings us word today of "energy poverty" in Germany. Presented without any irony or awareness of the fact that Obama's energy policies would take us to exactly the same place if implemented. So they have the best of both worlds, people who can afford to turn the lights on AND higher carbon admissions.

http://www.nytimes.com/2013/09/19/world/europe/germanys-effort-at-clean-energy-proves-complex.html?ref=world&_r=0

See the picture of the guy basking in the "cozy" glow of his 5 watt bulb.

Bring on the stone age!
 
Sorry that should have been "people that CAN'T afford to turn the lights on"
 
CF - I concur, and that's why I think they'll have to double down. But hey, neither of us is in the running for the next Fed Chair, so. ..l

Kind of makes you wince waiting for the next FedSwerve, doesn't it?
 
Brian - I have been watching the Energiewahnsinn in good ol' Deutschland with fascination so acute it sparks nausea.

The latest is that BNetza is slapping all the thermal plants the cos want to close with energy security notices, so now they will be subsidized to keep them open.

This deserves a post of its own, because the lunacy is endless. And yes, they have increased their carbon emissions in the process. It's a PERFECT ZERO.
 
Neil points out the catch-22:

The Fed wants to push interest rates down but doing so makes pensions unhealthy. This isn't since the crisis began, it BEGAN the crisis! We keep forgetting that interest rates were falling before the crisis - the large pension funds demanded Fannie and Freddie increase their yield/risk because the "safe" investments were no longer yielding what they used to. This wouldn't be a problem except the pensions in question are defined-benefit pensions: they were defined for a high-interest-rate environment.

By trying to solve one crisis the Fed merely creates another. The problem of course is that for the past 100 years the Fed has been DC's go-to agency to wallpaper over legislative and executive ineptitude/corruption. There are few people alive who can even comprehend a federal government operating without such a go-between.

That's why "when households come up cash short they just ratchet back their lifestyle in the coming months and year" is the exact INDICATOR of inflation and what inflation REALLY is: a tax increase on everyone who does not directly get Fed QE funds.

The economic beatings will continue until morale improves.
 
Meanwhile, the tanker cars are starting to jackknife in the Obamacare train wreck. How long until ignition?

http://online.wsj.com/article/SB10001424127887324807704579085472970959370.html?mod=WSJ_hpp_LEFTTopStories
 
I tried to post yesterday, but my phone decided that I shouldn't.

I know several people that have very marginal incomes. They don't really work traditional jobs, but manage to get by. (One of these guys used to have his own automotive shop. He'd repair and flip cars.) I am seeing these people slide into homelessness. I will grant you that part of the problem is their own fault. I have a co-worker though, that has problems coming up with basically 3 times his monthly rent to move into a new place. Rooms are renting for the amount that houses used to rent for. When you don't have shelter, food becomes iffy as well. People in a steady relationship are doing a bit better, when they have money to pool together.

As a society, we have done a major disservice to the poor. We have made all sorts of behavior acceptable that have dramatically worsened life for the poor. And we have essentially told them that it isn't their fault and that they should be supported. I just don't see a good outcome here.
 
Teri - we've also made work pay a lot less than it used to pay, which is creating a lot of poor people.

As a poverty factory, the industrial productivity of the US is spiraling ever higher.

What I see is:
Lower middle-class >>>> Poorish
Working class >>>> Poor
Low end workers >>>> Abject poverty, sometimes relieved by government programs.

I also see the earnings of younger, well-trained workers dropping very significantly, so I am not expecting this to improve any time soon.
 
Stepson--trying to run a small car detailing business. I suspect this is all under the table.

His ex-girlfriend--living in her car with her new boyfriend. (at least she was able to finance a newer car before her part time jobs went under). Stepson and ex-girlfriend living on the coast where jobs don't pay well anyway.

Boyfriend's nephew--he owns a contracting biz and managed to survive the recession by going to the Dakotas for work. Wound up with his house being foreclosed on by Freddie mac. Freddie Mac said they would take the money and let him keep his house, so he found a contractor that would co-sign a loan. Freddie Mac then tried to back out on the deal. He filed for bankruptcy today (and talked to Orrin Hatch's office), so at least the sheriff's didn't kick him out today. Freddie Mac's lawyer said he is telling his client to take the money and be done with it.

Friends staying at our place at the river--they were living out of the back of someone else's truck when they had been kicked out of the room, where they had been living. That's the guy I mentioned that used to have his own business. No telling if he can pull his life together or not. His girlfriend may be pregnant.

Us--moving out of our house to the river place so we can rent the house out. That's the only way we can keep up with the property taxes. The WA state attorney general ruled that WA can work with OR to set up light rail in the area and that OR can collect all the money. This is despite the people in this area voting down light rail at least twice. It's easy to see where they think they can get their money.

As for investments, I recommend guns and ammo. The meth heads will not be deterred by much else and so far, there is no program to buy them their drugs.
 
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