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HomeSedating the Quantitative Easing Monster
Posted by Larry Doyle on September 19th, 2013 9:04 AM |
At what point does a patient become addicted to medication so that a subsequent malady is potentially as bad if not worse than the original condition the prescribing doctor was trying to treat?
How disturbing is it to learn of individuals strung out on pain medication or more specifically methadone to treat a debilitating condition or drug habit?
Very disturbing.
In a very similar fashion, our resident medic, that being Fed chair Ben Bernanke, found himself boxed in by our patient, supposedly our economy but really our markets, that had begun to convulse and palpitate when word that its QE medication was going to be lessened. (more…)
Bernanke Walks It Back
Posted by Larry Doyle on July 18th, 2013 8:53 AM |
It took a few weeks, but the relatively recent smokescreen of a strengthening economy put forth by Ben Bernanke began to lift yesterday.
I find it especially interesting that it was not some new string of weak economic data that prompted the Fed chair to express increased caution about what is truly going on in the real world economy.
In fact, for what I believe might be the first time, Bernanke cautiously addressed the fact that the structural changes in our economy reflected in a significant decline in the labor force participation rate might be more indicative of our economic health than the actual unemployment rate.
A whiff of the truth amidst the daily diet of verbal diarrhea emanating from D.C? What a novel concept. (more…)
What Did Bernanke Really Accomplish?
Posted by Larry Doyle on June 21st, 2013 8:23 AM |
How will the history books treat Ben Bernanke? Well, only time will tell.
Supporters will tout his integral role in saving the system.
Those who look less kindly on the Fed chair will denigrate him for: 1) his participatory role in allowing Wall Street to bring our economy to its knees, and 2) providing excess liquidity for the well positioned to take advantage of a newly defined rent-seeking economy while the rank and file American public struggle to keep their head above water.
Perhaps he is deserving of both a measure of praise and derision, but let’s take a harder look at what he really accomplished — or not — depending on how you might view things. (more…)
Ben Bernanke: My Work is Done Here
Posted by Larry Doyle on June 19th, 2013 4:29 PM |
I just listened to the release of the FOMC’s statement and juxtaposed that with the Q/A with Big Ben.
I detected some not so subtle differences in these deliveries, and clearly the market did as well.
The markets were remarkably stable after the initial release as the Fed stated that its policy remains unchanged and there was no hint of tapering asset purchases as has been the concern since that term was used by the Fed a month ago.
The statement had a mildly positive spin on the economy but nothing overly exuberant as to serve as a warning sign that the Fed might begin to pull in on the reins so to speak. In fact, the rate of inflation remains well below the long term target of 2% so that should actually allow greater leeway for the Fed to stay the course with its current policy.
Then the afternoon took a decidedly different turn of events. (more…)
Fed-speak: Ease Air Out of Bonds – Support Equities
Posted by Larry Doyle on May 20th, 2013 9:38 AM |
“Don’t fight the Fed.”
While the fundamentals of our underlying economy bump along with continued structural headwinds and fiscal support from Uncle Sam remaining anemic, the Federal Reserve’s QE-infinity remains the underlying cornerstone supporting our markets.
With equities making new highs and high yield bonds trading at stratospheric levels, recent pronouncements from Fed officials strike me as looking to accomplish two goals: (more…)
New Banking Rules Have Not Hurt Jamie Dimon
Posted by Larry Doyle on June 8th, 2011 12:20 PM |
When do you know that somebody is tone deaf?
Those with any measure of ‘sense on cents’ know when an individual is tone deaf. How so?
When said individual racks up compensation in the multiple tens of millions of dollars from an industry that was bailed out by taxpayer funds and then complains about changes in regulatory oversight, you know that individual is tone deaf.
To whom do I refer? Welcome to the world of JP Morgan CEO Jamie Dimon. (more…)
Ben Bernanke’s “Hail Mary”
Posted by Larry Doyle on August 29th, 2010 11:12 AM |
Hail Mary passes are typically thrown late in a game in an attempt to clutch victory from the jaws of defeat. Ben Bernanke’s statement at the Fed’s Jackson Hole conference this past week is an indication that he is getting ready to throw his “Hail Mary.” The problem that I see, though, is that our ‘game’ is only somewhere in the second quarter.
Have you ever witnessed a football game where one team literally has to scrap its game plan because it finds itself in such a huge hole in the first quarter? That, my friends, is analogous to the state of the U.S. economy going into 2008. While we could debate whether the calls made by our coaching staff in Washington have helped or hurt our recovery, the fact is Ben and his fellow coaches have thrown everything and the kitchen sink at the economy and the results are anything but robust.
For a review of the game to date and the uncertain prognosis going forward, The New York Times’ Peter Goodman provides a wealth of ‘sense on cents’ in his fabulous and comprehensive commentary, (more…)
Audit the Fed or Washington Rope-a-Dope
Posted by Larry Doyle on January 13th, 2010 8:47 AM |
The American public wants answers.
The Washington establishment, primarily in the persons of Ben Bernanke and Tim Geithner, clearly feel America can’t handle the truth. What truth? The depth of economic despair and problems primarily embedded in our nation’s financial system. What institution has tried to fill the hole in our financial system? The Federal Reserve.
Given the shadowy operations of the private institution that is our central bank, Americans are justifiably nervous and concerned as to what lurks behind the shadows inside the Federal Reserve. To this end, with the leadership of Ron Paul (R-TX) the calls to ‘audit the Fed’ are growing ever stronger. (more…)
Bernanke Promises to Keep ‘Punch Bowl’ Filled
Posted by Larry Doyle on July 21st, 2009 1:59 PM |
Everybody back in the pool!!! Turn that music up and let’s rock!!
Why so ebullient and energized to ‘party?’ Well, our host, Ben Bernanke, has promised to keep the ‘punch bowl’ filled. As the Wall Street Journal highlights in writing Bernanke Sheds Light on Exit Strategy:
Mr. Bernanke reiterated that despite recent improvements in the economy and financial markets, the federal-funds rate will likely remain near zero for an extended period of time.
That statement by the ‘grand and wonderful wizard’ Ben Bernanke is the equivalent of turning up the volume to some music by the J. Geils Band. How are the partygoers reacting? Filling up their cups, that being, buying bonds like there is no tomorrow.
On the day, the Treasury market has rallied by 10 to 15 basis points (recall lower rates means higher bond prices) as all the partygoers (market participants) reenter into a variety of ‘positive carry’ trades. In layman’s terms, positive carry trades very simply are a vehicle to use cheap dollars (i.e Fed Funds borrowed between 0 and .25) to purchase higher yielding assets. Another commonly used term for this form of investing is utilizing increased ‘leverage.’ Yes, we have previously partied with increased leverage. That did not end well…
Why would traders or others utilize this approach in the midst of such economic uncertainty? Very simply, when the host tells you that the ‘punch bowl’ is going to remain filled for an extended period, he is compelling you to get involved. In fact, he is effectively forcing you into the pool. How so? The returns on the safest, shortest, and most liquid assets (T-bills, CDs, money markets) will also be kept low for an extended period.
As an investor, the Fed chair is literally forcing you to take greater risks in your investments. Those funds will be utilized by financial institutions to generate increased earnings and thus write off the loans on their books which are defaulting at an ever increasing rate.
What are the risks of keeping the ‘punch bowl’ filled too long?
> inflation, as too much “liquid”ity enters the system
> asset bubbles, as too many cheap dollars chase returns
> mispricing of risk, as market participants focus on the technical rally rather than fundamental analysis
The challenge for Bernanke is knowing when and how to pull that punch bowl away.
The last wizard, Alan Greenspan, badly miscalculated in his assessment which led to our current economic turmoil.
While it is nice to see positive returns in 401K statements and other monthly investment statements, be mindful of another tried and true piece of Wall Street wisdom . . . ‘the road to hell is paved with positive carry.’
In the meantime, as long as we understand the parameters of this situation, let’s enjoy Ain’t Nothing Like a House Party by the J. Geils Band!!
LD
