RSS Feed
Twitter
Facebook
Email
HomeSeptember 26, 2009: Month-to-Date Review of the Markets
Posted by Larry Doyle on September 26th, 2009 9:49 AM |
Did the market put in a top this week? Is the Federal Reserve sending signs of taking its foot off the accelerator? Is the economy displaying an inability to gain traction? Will the G-20 communique make any real impact on our global financial system? Let’s review the market performance for the week and provide our month-to-date statistics while addressing the above questions. In the process, we can collectively ‘navigate the economic landscape,’ the mission of Sense on Cents. Let’s start our brisk Saturday morning hike with a quick review of the economic data which I deem most important and impactful on the markets:
Economic Data
>Leading economic indicators rose .6 with July’s reading revised upward from .6 to .9 . . . we put this in the net plus category . . .
>Durable Goods Orders posted a -2.4% reading vs. a consensus expectation of a 1% gain. The bulk of the decline was in transportation which is further indication that the Cash for Clunkers program pulled demand forward only to be followed by a big dropoff . . . a real negative
>New Home Sales also disappointed. The WSJ highlights,
Momentum in the housing market has slowed, indicated by yesterday’s dip in existing home sales and by today’s weaker-than-expected report on new home sales. New home sales edged 0.7 percent higher in August to a 429,000 annual rate that compares unfavorably with expectations for 445,000. August’s level would have been below July’s level were it not for a downward revision with July now reading 426,000 vs. an initial 433,000.
How did the markets handle the Fed, the data, and technical flows? Let’s continue navigating. The figures I provide are the weekly close and the month-to-date returns on a percentage basis.
Equities
DJIA: 9665, +1.8%
Nasdaq: 2091, +4.1%
S&P 500: 1044, +2.3%
MSCI Emerging Mkt Index: 908, +6.6%
DJ Global ex U.S.: 193.0, +3.9%
Commentary: equities on average declined by 2% on the week. This decline largely retraces the prior week’s advancement. In the process, have we put in a top in the market, at least for the short term? I believe we have and believe that top occurred on Wednesday after the Federal Reserve released its policy statement. I highlighted the price action of Wednesday in my commentary, “Equity Market Key Reversal on 9/23/09.”
What did the market see in reading through the Fed’s statement? Hints that the Fed knows it needs to lessen the flow of liquidity into the markets. Also, recall that the market price action for September had been a virtual straight line higher. I highlighted that fact a week ago. If, in fact, we just put in a short term top in the market, I would project that target support levels for the DJIA would initially be 9000-9100 (a 24% retracement of the March to September move of 6500 to 9900) and then 8600 (a 38% retracement). We shall see, but those levels represent key Fibonacci Retracement levels.
Bonds/Interest Rates
2yr Treasury: .99%, an increase of 1 basis point or .01%
10yr Treasury: 3.32%, a decrease of 9 basis points
This flattening of the yield curve is typically an indication that the market believes the Fed is preparing some sort of tightening. While the Fed is nowhere close to actually raising its Fed Funds Rate, we know its quantitative easing program and certain other liquidity measures have wound down and will continue to wind down over the next 1-6 months.
COY (High Yield ETF): 6.42, +6.1%
FMY (Mortgage ETF): 17.62, +1.3%
ITE (Government ETF): 57.86, +.1%
NXR (Municipal ETF): 14.27, +1.3%
Commentary: the market continues to easily absorb any and all government bond supply. I assess that development as a growing concern of deflationary pressures building in the market. Additionally, an overwhelming percentage of investor funds are going into bonds. I would be very careful about adding exposure to lower credit rated parts of the market given the outperformance of those funds to date (for example, high yield bond funds are up approximately 50% on the year). If, in fact, the economy is battling deflationary pressures (and it is) and the Fed is unable to keep ‘the pedal to the metal,’ then equities and other risk assets should retrace while Treasury bonds will appreciate.
U.S. Dollar
$/Yen: 89.85 vs. 93.11 at August month end
Euro/Dollar: 1.4670 vs. 1.4338 at August month end
U.S. Dollar Index: 76.81 vs. 78.14
Commentary: the overall U.S. Dollar Index increased by approximately .45% on the week. I do think there is a high negative correlation between the dollar index and our equity markets (dollar improves, equities weaken) as a large number of hedge funds and market speculators have sold dollars to buy global equities, a form of a ‘positive carry‘ trade. I would encourage people to track the U.S. Dollar Index closely as a good sign as to the near term direction of the equity markets.
I should highlight that the dollar did continue to weaken vs. the Japanese yen. MarketWatch reports:
The dollar remained down more than 1% versus the Japanese yen after Japan’s Finance Minister Hirohisa Fujii said he opposes intervening in the currency markets to curb the rise in the yen, according to media reports.
I feel compelled to repeat my statement of the last few weeks:
This ‘positive carry’ trade is nothing more than implementing leverage. Do not confuse leverage with brains when a market is rising because as I said the other day, leverage is death when that bull becomes a bear. As I think of market developments, I am convinced that this ultimate unwind of leverage trades currently being implemented is Jeff Gundlach’s reasoning for being bullish on the dollar. How will this work? Investors will look to exit their risk based investments (emerging market stocks and the like) and buy back the dollars which they have borrowed. In the process, the dollar may rally significantly. The timing of this unwind is the critical question.
Commodities
Oil: $66.09/barrel vs. $69.93 at August month end
Gold: $992.4/oz. vs. $952.4 at August month end
DJ-UBS Commodity Index: 123.37 vs. 125.73 at August month end
Commentary: I view this segment of the market to be the STRONGEST indicator of the global economic pulse. Additionally, the price action in commodities is likely a strong indication of the ‘positive carry’ trade put on by hedge funds and other traders.
The overall commodity index is DOWN 2% on the month. What are equity markets, especially emerging markets, doing up in the face of this price action? Great question.
Additionally, the Baltic Dry Index moved lower this week by approximately 4%. I view that movement as reason for concern. Can global equities in general and commodities specifically increase in value if the major indicator of global trade, that being the BDI (Baltic Dry Index), is in a downtrend? I think not.
Summary/Conclusion
With September almost in the rear view mirror and a number of market participants having salvaged very respectable returns on a year-to-date basis, I believe many fund managers and other market participants will look to lock in profits and returns and mitigate risk positions. What does that mean? I think cash will exit some of the riskier parts of the market and look for a safe harbor.
While the global government wizards meeting in Pittsburgh at the G-20 may have ‘smiled for the cameras,’ the released communique has ZERO enforcement capabilities and thus, I continue to maintain:
The overriding fact remains that the ‘Uncle Sam economy’ is continuing to adapt to the very changed nature of our underlying market and economic dynamics. That dynamic in which the securitization of assets remains a distant memory will force credit to remain tight. Consumers need to adapt accordingly.
Thanks for your support. If you like what you see here, please subscribe via e-mail, Twitter, Facebook, or an RSS feed.
Thoughts, comments, questions always appreciated.
Have a great day and weekend.
LD
Wall Street Journal Goes in the Tank for FINRA
Posted by Larry Doyle on September 25th, 2009 9:18 AM |
When did real journalism move from asking the hard questions and demanding answers to the mere parroting of a party line? Recent polls indicate a lessened confidence in the media in our country. Why? Journalism has largely abdicated its responsibility to be the public conscience. I see evidence of this ‘parroting’ in today’s Wall Street Journal, which reports After 27% Fall, FINRA Plays It Safe.
FINRA, the Wall Street self-regulatory organization, has been under increasing pressure lately with the spotlight focused primarily on its investment portfolio activities. FINRA has provided virtually little to no transparency and, as such, currently faces 3 lawsuits by member firms. There is no doubt in my mind that today’s WSJ article is an attempt by FINRA to display a degree of transparency in order to keep the wolves at bay. Is FINRA fully transparent? Not in my opinion.
Did the WSJ pursue this story or was it conveniently placed to deflect the heavy criticism and charges FINRA faces in the lawsuits? Make no mistake, the WSJ has been largely absent in aggressively covering developments in and around FINRA. The returns generated by FINRA’s investment portfolio and its shift to a conservative strategy have been widely disseminated over the last few months and were highlighted here at Sense on Cents on June 29th when I wrote “FINRA 2008 Annual Report: A Special Type of Hubris”:
I personally believe it is very important for a financial self-regulatory organization, such as FINRA, to be totally transparent in every regard. Why? Very simply, transparency promotes confidence and FINRA’s position as a financial regulator should begin and end with that goal.
Against that backdrop, FINRA should not directly manage any of their own funds. To do so is an open invitation for conflicts of interest. FINRA’s own investment portfolio, managed by an Investment Committee, generated a negative 26% return in 2008. In April 2009, the FINRA portfolio shifted to a lower volatility approach but in 2008 it continued to have exposure to hedge funds, fund of funds, and private equity. As much as I believe this is a very big deal, it pales in comparison to the major issue I, and others, have with FINRA: their involvement with Auction-Rate Securities.
Why do I feel so strongly that the WSJ is serving as a mouthpiece for FINRA rather than truly digging for total transparency? Let’s zero in on how the WSJ addresses this auction-rate securities angle. As we do this, please recall the following:
1. $165 billion ARS remain frozen in investor accounts
2. A federal judge has designated the sales and marketing of ARS to be a fraud
3. FINRA did not post on its own website the failing nature and ultimate total failure of the ARS market until 2008, well after it liquidated its own position.
The WSJ, a proud financial periodical, provides less than cursory coverage to this piece of the FINRA story, in writing:
Finra used an outside consultant, Jeffrey Slocum & Associates of Minneapolis, to help choose money managers. In 2006, Finra hired as chief investment officer Boris A. Wessely, then treasurer at the Rockefeller Brothers Fund. Ms. Schapiro succeeded Mr. Glauber as the agency’s CEO in mid-2006.
One early step by Mr. Wessely’s team was the mid-2007 sale of about $650 million of auction-rate securities. The sale wasn’t influenced by any sign of weakness in the auction-rate market, which froze in 2008, but instead was a move to diversify Finra’s short-term investments away from such a niche product, people with knowledge of the move say. (LD’s highlight)
People with knowledge of the move say?? That is the best the WSJ can do to pursue what truly happened with FINRA’s sale of ARS? That statement is the equivalent of FINRA or whomever the ‘people with knowledge’ stating, ‘you’ll have to trust us on this.’
I would put forth that the days of blind trust are over and that for the thousands of investors sitting with those $165 billion in frozen ARS the days of verification are upon us.
I reiterate my longstanding call that FINRA must reveal all the details surrounding its ARS liquidation. Those details include the date of liquidation, the proceeds, the dealer or dealers through whom FINRA liquidated the ARS, and most importantly whether FINRA possessed material, non-public information and acted upon it.
I fully appreciate that my writing and questions here are aggressive, but at this point in our country’s history the American public deserves nothing less than full and total transparency from its financial regulators. Regrettably, both FINRA and the WSJ fall woefully short in providing it.
Comments, questions, constructive criticisms always appreciated.
LD
Top Producer by Norb Vonnegut
Posted by Larry Doyle on September 24th, 2009 4:04 PM |
The 1980s saw dramatic swings on Wall Street. The ’80s brought us the start of a major bull market in bonds along with the major stock market crash of 1987. Rest assured, though, there was as much action after hours as there was during the trading days. The book that captured the true essence of that time period was Bonfire of the Vanities by Tom Wolfe.
There is no doubt the economic booms and busts of this decade make the ’80s look like childs’ play. What books will be published to capture the essence of this period? Let me propose Top Producer by Norb Vonnegut, a Wall Street veteran who understands a 10-Q, a CDO, and the spirit of the characters who drove Wall Street and our economy into the ground.
This recent review of Top Producer speaks volumes:
It seems Kurt wasn’t the only Vonnegut with storytelling in the extended family DNA. The proof is in this entertaining debut novel from Kurt’s distant cousin Norb Vonnegut. Here we meet Grove O’Rourke, a successful stockbroker (known as a “top producer” in Wall Street-speak) swirling in the aftermath of his best friend’s gory, public murder. To help the widow, Grove tries to decipher the ins and outs of his friend’s hedge fund business. Then, of course, mysteries and secrets unfurl, and our well-meaning protagonist finds himself in hot water.
The story mirrors reality — in ways that may now surprise even its author, who finished the book before the economic meltdown. The two decades Vonnegut spent as a wealth advisor are evident in the venom he brings to descriptions (”a colostomy bag in wingtips”) and in his grasp of the cutthroat world of finance. That plus his affinity for wordplay — nicknaming a raspy-voiced character “the hoarse whisperer” — will likely give you an appreciative smirk as you turn the pages to see exactly what happens to Grove in his search for the truth.
For those who have worked on trading desks and for those who would like an insider’s look at the Wall Street pace and race, Top Producer is a must read. I strongly recommend it.
Author Norb Vonnegut will be joining me this Sunday evening on No Quarter Radio’s Sense on Cents with Larry Doyle to discuss his surefire blockbuster, as well as his views on the Wall Street experience.
LD
Volcker Locks and Unloads on Wall Street and Washington
Posted by Larry Doyle on September 24th, 2009 12:15 PM |
Former Fed Chair Paul Volcker
I find it interesting, but not surprising, that former Fed Chair Paul Volcker’s testimony to Congress this morning has received little to no coverage by major media outlets. Why? With few exceptions, the financial media plays along with the financial industry which pays the bills while relegating investors and the American public to the bleachers.
Recall that just a week ago I wrote “Volcker Launches Bombshell on Wall Street and Washington.” I highlighted Volcker’s direct hit:
While the insiders on Wall Street and Washington pander about real financial regulatory reform, former Fed chair Paul Volcker yesterday hit ground zero on this hotly debated topic.
The heart of financial regulatory reform is centered on the implementation of leverage by our largest financial institutions. The leverage is exercised in a wide array of activities, both on and off-balance sheet. The capital utilized by the banks in these activities is credit that has not and will not flow directly through to the economy. Why? The banks believe that they will generate a greater return on the capital via proprietary activities rather than facilitating client business and addressing customer needs.
Today, Volcker locks and loads and unleashes another volley on the wizards in Washington and their incestuous brethren on Wall Street. Whatever you may think of Volcker as a central banker, I hold him in high regard for elevating the debate at this critical point in our country’s economic history. Regrettably, President Obama’s adviser, Mr. Larry Summers, has taken Mr. Volcker’s chair away from the table. Yes, this is the same Mr. Summers who The New York Times described this past April as having received A Rich Education . . .
Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds, according to financial records released Friday by the White House.
Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week.
Although I digress from my focus on Mr. Volcker, I find it enlightening that the man in Washington who has pushed Volcker away from the table stuffed himself at the Wall Street trough. Back to Mr. Volcker. (more…)
Equity Market Key Reversal on 9/23/09
Posted by Larry Doyle on September 23rd, 2009 9:16 PM |
I believe Wednesday’s equity price action was very significant. Many market participants believe the market is trading much more on technical analysis than fundamental valuations. I put myself in that camp. So, why was Wednesday’s price action so significant? We experienced a very rare occurrence, technically known as a key reversal, an outside day, or outside reversal. Each of those terms means the same thing.
In layman’s terms, these key reversals are indicators of a change in the trendline of the market. In an attempt to simplify how a key reversal works, one needs to analyze the trading range of an index or security relative to the prior day’s trading range. If the current day’s trading range incorporates a “higher high” than the previous day, a “lower low” than the previous day, and a “lower close” than the previous day, then the market will have experienced a key reversal. We witnessed that very price action on Wednesday. Allow me to display this price action for a few major market equity indices:
DJIA
on 9/22 High 9843 Low 9772 Close 9830
on 9/23 High 9918 Low 9741 Close 9748
S&P 500
on 9/22 High 1074 Low 1066 Close 1072
on 9/23 High 1080 Low 1060 Close 1061
Nasdaq
on 9/22 High 2151 Low 2137 Close 2146
on 9/23 High 2168 Low 2130 Close 2131
This key reversal is not a guarantee of a continued decline in prices (a key reversal could also be bullish if it made a lower low, a higher high, and a higher close), but it is a strong indicator of such. I am not currently a day trader, but I have fond memories of my trading days on Wall Street using this technical indicator.
Let’s monitor the price action and see if it proves to hold true once again.
Thoughts, comments, questions always appreciated. Don’t be bashful.
LD
What Does the Fed’s Statement Mean for Mortgage Rates?
Posted by Larry Doyle on September 23rd, 2009 3:40 PM |
The Fed’s statement at 2:15pm had no real surprises, but there is one development that bears comment — especially for anybody looking to finance or refinance a home. The Fed stated:
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.
What does this mean? The Fed’s program of buying mortgage-backed securities to support housing was scheduled to end December 31st. It will now be extended through the end of the first quarter 2010. The fact is, though, the Fed is not purchasing more MBS (mortgage-backed securities) than the previously advertised $1.25 trillion. The Fed is merely lengthening the time over which it buys those MBS.
Add it up, and the largest buyer of MBS in the market will have a lessened impact because its purchasing power is being diluted via this extension. As a result, overall conforming mortgage rates will not likely come down much if Treasury rates were to continue to decline. By the same token, if Treasury rates were to rise, mortgage rates will likely rise at an even faster rate.
Recall that just the other day Wells Fargo CEO John Stumpf shared that his bank was not purchasing any MBS for its own portfolio nor was it retaining any of its own mortgage originations. Why? From a pure relative value standpoint, MBS are overvalued. Why? The Fed has effectively been overpaying to buy MBS in an attempt to get mortgage rates down and support housing.
With the end of the Fed’s purchase program on the horizon, mortgage rates will likely start to move higher in order to attract other potential investors.
What is a homeowner to do? Don’t wait to refinance thinking that rates are going to come down much further.
LD
Is the Wall St. Block Party at the Geithners and Bernankes Breaking Up?
Posted by Larry Doyle on September 23rd, 2009 12:37 PM |
Are Big Ben Bernanke and Turbo-Tim Geithner preparing to gently turn the lights up, turn the music down, put away the hard booze, and throw the coffee on? Have the partygoers on Wall Street had too much of a good time? Has the ‘liquid-ity’ flowed a little too liberally at this bash?
We will all learn more today at 2:15pm or thereabouts when the Fed releases its regular statement assessing our economy. Will a slightly more positve view of the economy actually be met with a selloff in the markets? I believe that may very well happen. Why? The Wall Street party’s ‘hosts,’ that being Bernanke and Geithner, need to prepare the partygoers to sober up, which is a very delicate undertaking. As with any sobering process, the first thing you do is make sure you have called your friends down at ‘the station’ so nobody gets picked up unnecessarily. That ‘cover’ has worked wonders for a long time, but the partygoers may want one more ‘get out of jail free’ card at this juncture. We saw as much in the token fine assessed by the SEC ‘cops’ against Bank of America just last week.
Bloomberg highlights the predicament of the party’s host in writing, Fed May Signal U.S. Economic Recovery Has Started. We do not need to be mentalists to read the tea leaves indicating the Fed’s juice is likely to slow and that it may be time to go home. Bloomberg writes:
>>”The bottom is no longer falling out, but the recovery is still at a very early stage,” said Gertler, who worked with research on the Great Depression with Bernanke before he became Fed chairman. “There is no need to expand the balance sheet now, but it is a bit too early to begin shrinking it.”
>>Central bank officials may also discuss changing the size and duration of their plan to buy as much as $1.25 trillion of mortgage-backed securities and $200 billion of agency debt by the end of this year, said former Fed governor Laurence Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers LLC.
>>Three district bank presidents — Jeffrey Lacker of Richmond, James Bullard of St. Louis and Dennis Lockhart of Atlanta — raised the possibility that the Fed may not spend all the money authorized for the mortgage-backed debt.
>>Fed officials have started talks with bond dealers to use so-called reverse repurchase agreements to drain some of the cash the central bank has pumped into the economy, according to people with knowledge of the discussions.
How are the partygoers on Wall Street preparing for the slowing, if not the end, of this block party? The Treasury yield curve is flattening today. I highlighted this likelihood yesterday when I wrote, “Is the Federal Reserve Readying a Stealth Tightening of Monetary Policy?”
You do not have to listen very hard, though, to hear the crowd on Wall Street sharing their feelings. In fact, this classic tune by Southside Johnny and the Asbury Jukes is playing on Wall Street right about now. ~ LD
Related Sense on Cents Commentary:
“Bernanke Promises to Keep ‘Punch Bowl’ Filled” (July 21, 2009)
Economics Trumps Politics During Times of Turmoil
Posted by Larry Doyle on September 23rd, 2009 9:54 AM |
Will the United States be able to make real progress on major diplomatic initiatives during the current economic crisis? The diplomatic path may ultimately be nothing more than a ‘road to perdition.’ Why do I feel this way? We don’t need to look all that hard to witness a number of countries pursuing economic policies at the expense of international diplomacy. During the current economic crisis, this should not be surprising. Political leaders of all stripes will sacrifice principle in an attempt to appease and assuage the economic pains of their electorate.
I do not pretend to be a political scientist nor an economic historian, but I believe I understand enough about market forces to view these economic maneuvers by a number of countries as nothing more than an international version of Game Theory.
This gamesmanship is playing out across the world stage from political hot spots to the friendly confines of our nation’s backyard. The Financial Times prominently highlights a wide array of nations pursuing their economic interests via increased trade with Iran. This trade flies right in the face of Washington’s hopes to curtail the development of Iranian nuclear capabilities.
The FT writes, Beijing Begins Petrol Supplies to Iran:
Chinese state companies this month began supplying petrol to Iran and now provide up to one-third of its imports in a development that threatens to undermine US-led efforts to shut off the supply of fuel on which its economy depends.
While China would maintain that it is pursuing diplomatic initiatives to curtail Iran’s development of nuclear weapons, make no mistake China and other countries will look for any market to fill the enormous decline in exports which previously flowed to the United States. The FT further highlights this very point in writing, Business at Sharp end of Iran Sanctions. Despite legislation enacted in Washington to address nations trading with Iran, the legislation lacks enforcement powers. As a result, nations that are flush with oil or other commodities, but relatively cash poor, will pursue trade alliances which benefit them economically. The FT writes as much:
Hojjatollah Ghanimi-Fard, the vice-president of National Iranian Oil Company for investment affairs, said Iran had a “big list” of suppliers “scattered” around the world and that it was “very easy” to replace one with another.
We should not be so naive to think that this economic gamesmanship is only occurring in political hotspots. If we look hard enough, we can see that the U.S. is pursuing economic benefits at political expense even with our Canadian friends. A recent visit to Washington by Canadian Prime Minister Steven Harper was for the purpose of addressing increasing U.S. protectionism right here in North America. While Harper and Obama ‘smiled for the cameras,’ the relationship is becoming increasingly strained by U.S. protectionist tendencies. A specific example is embedded in Obama’s proposed cap and trade legislation. Harper addresses this issue in a recent New York Times commentary, Harper on U.S-Canada Energy Relations:
Mr. Harper said that while Canada and the United States shared the goal of combating climate change, he disagreed with one provision in the Waxman-Markey climate bill that passed the House of Representatives in June. That provision would impose tariffs on countries that did not keep their emissions under control.
Such a measure “would become a front for protectionism quicker than you can say ‘hello,’ ” Mr. Harper said.
Hello indeed and welcome to a world in which sovereign economics will continue to trump international diplomacy and politics for the foreseeable future. The immediate benefits of these pursuits will come at the expense of significant risks down the road.
LD
The Modern Mystic Reads from Sense on Cents
Posted by Larry Doyle on September 22nd, 2009 6:47 PM |
How can we measure just how small the world has become? When a commentary I wrote a few days ago becomes the topic for a public reading displayed on a YouTube video produced in France, it’s a small world after all.
I have to admit, I chuckled this morning upon viewing the video in which a man who uses the pseudonym “The Modern Mystic” talks about the dollar carry trade. In so doing, he actually reads my commentary from September 16th entitled “Dollar Carry Trade Drives Global Equity Markets.”
I am flattered that ‘Modern Mystic’ would read my work while simultaneously critiquing it and adding his own insights. His surroundings only add to the allure of this clip. If you care for a bit of a chuckle while taking a virtual trip across the pond, this 12 minute clip is rather amusing.
Now, if I could only convince the Mystic to acknowledge me and Sense on Cents, perhaps the next clip may may be the big screen . . . (LOL)!!
Enjoy.
LD
Further Indication of a Stealth Tightening by the Federal Reserve
Posted by Larry Doyle on September 25th, 2009 1:55 PM |
I enjoyed reading the tea leaves embedded in just such a commentary, The Fed’s Job Is Only Half Over, in today’s WSJ. The writer, Kevin M. Warsh, is a senior Fed official and a member of the Federal Reserve’s Board of Governors since 2006. Mr. Warsh writes in a very professional fashion while laying out the Fed’s actions to date. His commentary gets most interesting in looking toward the future. While not negating the Fed’s policy statement released the other day, Warsh leaves little doubt as to which way the Fed is leaning:
What is Warsh saying? The Fed is going to need to withdraw liquidity from the system sooner than what economic indicators may indicate or market participants may desire.
What is Warsh saying here? The Federal Reserve can not simply flood the system with liquidity to the benefit of market participants, but without thoughtfully considering the loss of its credibility.
Why is Warsh, on behalf of the Fed, releasing this commentary? In my opinion, I believe the Fed is becoming increasingly concerned that excess liquidity has flooded the system, driven asset levels too high, and the dollar too low. In the process, if liquidity were to continue to flow, the cost could be a dangerously precipitous decline in the value of the greenback.
Add it all up, and although the Fed does not want to spook the markets, this statement is an indication that the Fed is getting ready to take its foot off the accelerator. In the process, our equity markets should give ground.
LD
Tags: commentary by Federal Reseve officials, credibiliy of Federal Reserve, does Fed need to withdraw liquidity sooner rather than later, Federal reserve never wants to spook the markets, is Federal reserve concerned about the value of the dollar, Kevin Warsh of Federal Reserve writes on Federal Reserve policy, what has Kevin Warsh said about Federal reserve policy and programs, What is Federal Reserve saying about future policy, what is Kevin Warsh saying about Fed policy, will Fed have to tighten sooner than we think, would federal Reserve lose credibility if it does not withdraw liquidity, WSJ The Fed's Job is Only Half Over
Posted in Federal Reserve, General | No Comments »