Tuesday = Election. Wednesday = Real Policy Makers

[/dev/null]

Here comes the Fed

 

http://www.bloomberg.com/news/2010-11-01/fed-likely-to-announce-500-billion-of-purchases-survey-shows.html

Edited November 3, 2010 by /dev/null

[pBills]

Remains to be seen. They didn't do much before. Have they learned their lesson?

 

Plus, I heard about that story about a week ago.

Edited November 3, 2010 by pBills

[Magox]

This is an experiment from the fed that won't work. A Goldman Sachs report recently showed that if indeed the policy lever for producing the so called "good inflation" is to reduce the value of the dollar, that the value of the dollar would have to go down substantially further to meet the "desired" inflation target, much more so than the Fed has calculated.

 

I myself believe that it will produce the "bad inflation" which is higher commodity prices which affects every single consumer on the planet, punishes the lower to middle class more than anything and of course hurts businesses on the margin and in an economy that is struggling to find domestic growth, it is quite obvious to me that these costs will be passed down to the consumer.

 

Take it to the bank, bad inflation is in the forecast.

Edited November 3, 2010 by Magox

[TPS]

This is an experiment from the fed that won't work. A Goldman Sachs report recently showed that if indeed the policy lever for producing the so called "good inflation" is to reduce the value of the dollar, that the value of the dollar would have to go down substantially further to meet the "desired" inflation target, much more so than the Fed has calculated.

 

I myself believe that it will produce the "bad inflation" which is higher commodity prices which affects every single consumer on the planet, punishes the lower to middle class more than anything and of course hurts businesses on the margin and in an economy that is struggling to find domestic growth, it is quite obvious to me that these costs will be passed down to the consumer.

 

Take it to the bank, bad inflation is in the forecast.

Wow! I completely agree. We may have different explanations for how that will happen, but I see the same.

Although as a caveat, I am bullish on stocks again because of the impact the cheap $ is having on exports, and that is beginning to filter, so there will be one positive.

[/dev/null]

Remains to be seen. They didn't do much before. Have they learned their lesson?

 

Plus, I heard about that story about a week ago.

 

The rumors have been swirling out there at least a month

[Magox]

Remains to be seen. They didn't do much before. Have they learned their lesson?

 

Plus, I heard about that story about a week ago.

What do you mean they "didn't do much before"?

[pBills]

What do you mean they "didn't do much before"?

 

 

That was in response to the subject line... Tuesday = Election. Wednesday = Real Policy Makers

[Magox]

That was in response to the subject line... Tuesday = Election. Wednesday = Real Policy Makers

Oh... Even though what Dev was talking about was the FED. They are the "Real Policy Makers" he was referring to.

 

 

Also to TPS point, yes this most likely makes many stocks "cheap" specially exporters which I've been bullish on for seven years now and I don't see that changing any time soon.

 

I would say that most stocks will rise....... For now.

 

The Fed has a dual mandate, Employment and inflation. I see a negligible effect on employment, the best rational solution we have is for the Government to unleash the "animal spirits" of the free enterprise, and that isn't through more Deficit stimulus spending (that is a stop gap solution), the way they could achieve this is to roll back some of the regulations and mandates that the government has imposed and to impose more supply side Corporate and payroll tax deduction style economics. This would certainly lower the unemployment rate. But it would only take us down so far, we have structural employment problems that won't be solved over the few years no matter what we do, and the best way to try to solve these problems is through patience and prudence and look for structural solutions.

 

There are two big risks that the Fed is facing, the obvious one is the inflation threat. The problem with trying to induce inflation through QE is that the gauges that the FED looks at (Core CPI) are heavily weighted with Wages and housing, so QE in the short-term most likely won't move the needle to the upside, specially considering that housing is expect to go down about another 8-10% over the next 12 months, and there are still a ton of local and state local government jobs that will either be layed off or furloughed (even more so now with GOP governors). So, the inflation that I see rising will be the "bad inflation" which are commodity prices.

 

The other major risk I foresee is, if the markets judge a year or so from now that the Fed hasn't been able to successfully carry through on its mandate of inflation and employment that you could see much of the markets upside movement that was due to QE get rolled back.

 

We'll see, I am not predicting that yet, but it is a definite possibility/risk in my calculations.

[TPS]

The Fed has a dual mandate, Employment and inflation. I see a negligible effect on employment, the best rational solution we have is for the Government to unleash the "animal spirits" of the free enterprise, and that isn't through more Deficit stimulus spending (that is a stop gap solution), the way they could achieve this is to roll back some of the regulations and mandates that the government has imposed and to impose more supply side Corporate and payroll tax deduction style economics. This would certainly lower the unemployment rate. But it would only take us down so far, we have structural employment problems that won't be solved over the few years no matter what we do, and the best way to try to solve these problems is through patience and prudence and look for structural solutions.

The so-called "dual mandates" are not its primary function, financial stability is; the Fed was created for this purpose. Next on the list is the inflation goal, because they were created to serve financial interests; hence, they have an inflation target, not an employment target.

 

As to the current policy, I will continue to beat the drum on cutting the payroll tax because it will raise both disposable income and business profits (your supply side).

 

The other major risk I foresee is, if the markets judge a year or so from now that the Fed hasn't been able to successfully carry through on its mandate of inflation and employment that you could see much of the markets upside movement that was due to QE get rolled back. We'll see, I am not predicting that yet, but it is a definite possibility/risk in my calculations.

That's pretty vague. What would be "unsuccessful" with respect to inflation? Higher or lower?

[Magox]

The so-called "dual mandates" are not its primary function, financial stability is; the Fed was created for this purpose. Next on the list is the inflation goal, because they were created to serve financial interests; hence, they have an inflation target, not an employment target.

 

You are right, that is what it SHOULD be, but in this case, they are looking at inflation and unemployment.

 

U.S. employment and inflation are likely several years away from being within the Federal Reserve's comfort zone, a top Fed official said Tuesday.

 

"Viewed through the lens of the Federal Reserve's dual mandate the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory," said William Dudley, president of the New York Fed, reiterating an argument he made earlier this month.

 

Dudley said at a press briefing that the momentum of the U.S. recovery has slowed. Job creation is too weak to significantly bring down a jobless rate, currently at 9.6 percent, and the rate of inflation has fallen, he said.

 

As I said, they are looking at employment as a major factor in their decision making.

 

 

As to the current policy, I will continue to beat the drum on cutting the payroll tax because it will raise both disposable income and business profits (your supply side).

 

no argument here

 

That's pretty vague. What would be "unsuccessful" with respect to inflation? Higher or lower?

 

Considering that the CORE CPI readings are heavily weighted in housing/living expenses and wages I don't believe that the CORE CPI will rise up to their "desired" level. As Goldman Sachs reported, the value of the dollar would have to drop down substantially further than what they are expecting in order for it to meet it's inflation target.

 

So my guess is that the CORE CPI readings will continue to be on the low end.

 

However, considering that CORE CPI strips food and energy, the "bad inflation" will already begin to take it's toll on the economy, which will hinder growth.

Edited November 3, 2010 by Magox

[TPS]

Considering that the CORE CPI readings are heavily weighted in housing/living expenses and wages I don't believe that the CORE CPI will rise up to their "desired" level. As Goldman Sachs reported, the value of the dollar would have to drop down substantially further than what they are expecting in order for it to meet it's inflation target.

 

So my guess is that the CORE CPI readings will continue to be on the low end.

 

However, considering that CORE CPI strips food and energy, the "bad inflation" will already begin to take it's toll on the economy, which will hinder growth.

Does this mean you've changed your view on how that $1-$2 trillion (or is it 3 now?) of Fed "money printing" will impact inflation?

[Magox]

Does this mean you've changed your view on how that $1-$2 trillion (or is it 3 now?) of Fed "money printing" will impact inflation?

I don't know how you came to that conclusion, it's as if you haven't been reading anything I have been telling you for over a year now. Have I not been saying all along that I don't place much weight on the FED's gauges of CPI inflation readings? What I have been saying all along is that we are already beginning to see REAL inflation, through higher commodity and health care costs.

 

The point that I made on this thread was through the FED's POV. They have a temporary dual mandate of producing more inflation and employment. What I said was that the CORE CPI readings are heavily weighted in housing/living expenses and wages. These areas won't be seeing any sort of meaningful growth for the foreseeable future specially considering the deleveraging process that is still occuring on the government level and the anticipated 8-10% fall in RE that has yet to occur (second housing double-dip).

 

Considering that it excludes food and energy, the dollar would have to drop substantially further in order for CORE CPI to increase. So through the FED's POV, in my estimations they will continue to put the pedal to the metal with their QE policies. Which as I stated, will create the "bad inflation".

 

I haven't changed my view, my stance has remained consistent.

Edited November 3, 2010 by Magox

[TPS]

I don't know how you came to that conclusion, it's as if you haven't been reading anything I have been telling you for over a year now. Have I not been saying all along that I don't place much weight on the FED's gauges of CPI inflation readings? What I have been saying all along is that we are already beginning to see REAL inflation, through higher commodity and health care costs.

 

The point that I made on this thread was through the FED's POV. They have a temporary dual mandate of producing more inflation and employment. What I said was that the CORE CPI readings are heavily weighted in housing/living expenses and wages. These areas won't be seeing any sort of meaningful growth for the foreseeable future specially considering the deleveraging process that is still occuring on the government level and the anticipated 8-10% fall in RE that has yet to occur (second housing double-dip).

 

Considering that it excludes food and energy, the dollar would have to drop substantially further in order for CORE CPI to increase. So through the FED's POV, in my estimations they will continue to put the pedal to the metal with their QE policies. Which as I stated, will create the "bad inflation".

 

I haven't changed my view, my stance has remained consistent.

I remember; was just checking...

[bills_fan]

CORE CPI does not include housing, but rather owner's equivalency rent, which is why house prices doubled from 2000-2005 without any monetary response.

 

Get ready for far more expensive things you need like gas, heating oil and food and far cheaper things you want like flat screen TVs. Yes, this will decimate the lower middle and working poor classes.

 

The employment situation will not improve, profit margins will be squeezed as cost inputs rise and sales fall off due to higher costs. Businesses will need to protect margins somewhere, so here comes the layoff axe again.

 

If we are talking inflation mandate for the Fed, it is 1-2%. Check out the latest GDP report, in 2Q you had 2% and 2.2% in Q3...where's the problem? Or is he just lying re: inflation mandate?

 

Ultimately...Damon Silvers said it best...this is THE choice.

[Magox]

CORE CPI does not include housing, but rather owner's equivalency rent, which is why house prices doubled from 2000-2005 without any monetary response.

 

Get ready for far more expensive things you need like gas, heating oil and food and far cheaper things you want like flat screen TVs. Yes, this will decimate the lower middle and working poor classes.

 

The employment situation will not improve, profit margins will be squeezed as cost inputs rise and sales fall off due to higher costs. Businesses will need to protect margins somewhere, so here comes the layoff axe again.

 

If we are talking inflation mandate for the Fed, it is 1-2%. Check out the latest GDP report, in 2Q you had 2% and 2.2% in Q3...where's the problem? Or is he just lying re: inflation mandate?

 

Ultimately...Damon Silvers said it best...this is THE choice.

Absolutely, all though when I said "housing", I wasn't inferring to housing prices directly impacting the CPI but more so in an indirect manner, what I was referring to was housing related costs such as rent. Housing values do affect rental prices.

 

Also, Ben Bernanke came out with a piece in the Washington Post today, defending his decision, which I found to be interesting in itself. My guess is that he is trying to stave off any serious credibility concerns that I'm sure he anticipates.

 

Notwithstanding the progress that has been made, when the Fed's monetary policymaking committee - the Federal Open Market Committee (FOMC) - met this week to review the economic situation, we could hardly be satisfied. The Federal Reserve's objectives - its dual mandate, set by Congress - are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.

 

 

 

He understands that if the FED loses credibility then the game is over.

[drnykterstein]

You can't ask for a much better start

http://finance.yahoo.com/news/Stocks-surge-a-day-after-Fed-apf-3673030832.html?x=0

[Rob's House]

You can't ask for a much better start

http://finance.yahoo.com/news/Stocks-surge-a-day-after-Fed-apf-3673030832.html?x=0

The dollar fell against other currencies as traders anticipated lower U.S. interest rates because of the Fed's massive bond-buying program announced Wednesday. Commodities prices including crude oil rose.

 

Awesome.

[Magox]

You can't ask for a much better start

http://finance.yahoo.com/news/Stocks-surge-a-day-after-Fed-apf-3673030832.html?x=0

No doubt, just about everything is going to go up.....

 

For now...

 

Bernankes plan is called the "Wealth effect" strategy, where people see there stock prices go higher, they feel wealthier and then people start spending more which leads to more hiring.

 

The problem is that most of those funds aren't being kept here domestically. The market is going higher not based on solid growth fundamentals but purely because of a liquidity blitz from the Fed which is pushing investors out of longer dated bonds, savings and the dollar into EM and commodity based economies as well as commodities and equities.

 

This carries a large risk. One, Oil is around $87 a barrel right now, food is going through the roof and so are the rest of the commodities. At what point do consumers start changing their consumption patterns based on higher inflationary commodity prices? Which of course punishes lower to middle income earners by reducing their disposable income. Also, many companies depend on tight margins, with higher input costs, they will have to pass this down to the consumer or lower profit margins or a combination of the two.

 

The other risk is what happens if their dual mandate of lowering unemployment doesn't work? Everything that had been going up purely based on QE could be at risk.

 

Basically what we are doing now is flooding EM markets with dollars, manufacturing inflation overseas, and then looking to import it right back.

 

I think this is a terrible idea. It is going to spark as I have noted a global developed world currency devaluation, it will be a race to the bottom. I am now forecasting oil to average over $100 a barrel next year UNLESS central bank policy makers from the developed world reverse course on loose monetary policy.

 

I am just about all in, in the commodity sector and shorting longer-dated US treasury bonds.

Edited November 4, 2010 by Magox

[Rob's House]

No doubt, just about everything is going to go up.....

 

For now...

 

Bernankes plan is called the "Wealth effect" strategy, where people see there stock prices go higher, they feel wealthier and then people start spending more which leads to more hiring.

 

The problem is that most of those funds aren't being kept here domestically. The market is going higher not based on solid growth fundamentals but purely because of a liquidity blitz from the Fed which is pushing investors out of longer dated bonds, savings and the dollar into EM and commodity based economies as well as commodities and equities.

 

This carries a large risk. One, Oil is around $87 a barrel right now, food is going through the roof and so are the rest of the commodities. At what point do consumers start changing their consumption patterns based on higher inflationary commodity prices, which of course punishes lower to middle income earners by reducing their disposable income. Also, many companies depend on tight margins, with higher input costs, they will have to pass this down to the consumer or lower profit margins or a combination of the two.

 

The other risk is what happens if there dual mandate of lowering unemployment doesn't work? Everything that had been going up purely based on QE could be at risk.

 

Basically what we are doing now is flooding EM markets with dollars, manufacturing inflation overseas, and then looking to import it right back.

 

I think this is a terrible idea. It is going to spark as I have noted a global developed world currency devaluation, it will be a race to the bottom. I am now forecasting oil to average over $100 a barrel next year UNLESS central bank policy makers from the developed world reverse course on loose monetary policy.

 

I am just about all in, in the commodity sector and shorting longer-dated US treasury bonds.

Leave it to Conner to get a stiffy over policy that hurts poor, middle class, and old people, but does little if anything to burden the hated rich.

[Magox]

Leave it to Conner to get a stiffy over policy that hurts poor, middle class, and old people, but does little if anything to burden the hated rich.

This is NOT I repeat NOT good news for lower to middle income earners. Look for the highest gasoline prices you've seen since 2008 here really really soon.