Tag Archives: central bank policies

Unwinding QE will be “More Disruptive than People Think”: JP Morgan CEO Dimon, by Wolf Richter

This article was worth posting simply because it contains what sounds like some sort of intellectual humility from JP Morgan’s CEO, Jamie Dimon. From Wolf Richter at wolfstreet.com:

“We act like we know exactly how it’s going to happen, and we don’t.”

“We’ve never had QE like this before, and we’ve never had unwinding like this before,” said JPMorgan CEO Jamie Dimon at the Europlace finance conference in Paris. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.”

He was referring to the Fed’s plan to unwind QE, shedding Treasury securities and mortgage-backed securities on its balance sheet. The Fed will likely announce the kick-off this year, possibly at its September meeting.

According to its plan, there will be a phase-in period. It will unload $10 billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its “balance sheet normalization.” Just like the Fed “created” this money during QE to buy these assets, it will “destroy” this money at a rate of $50 billion a month, or $600 billion a year. It’s the reverse of QE, with reverse effects.

Other central banks are in a similar boat. The Fed, the Bank of Japan, and the ECB together have loaded up their balance sheets with $14 trillion in assets. Unwinding this is going to have some impact – likely reversing some of the asset price inflation in stocks, bonds, real estate, and other markets that these gigantic bouts of asset buying have caused.

The Bank of Japan has been quietly tapering its asset purchases for a while to where it buys only enough to keep the 10-year yield barely above zero. And the ECB has tapered its monthly purchases by €20 billion earlier this year and is preparing the markets for more tapering. Once central banks stop buying assets, the phase starts when central banks try to unload some of those assets. The Fed is a the threshold of this phase.

Dimon was less concerned about the Fed’s rate hikes. People are too focused on rate hikes, he said, according to a Bloomberg recording of the conference. If the economy is strong, economic growth itself overcomes the issues posed by higher rates, he said. The economy has been through rate hikes many times before. They’re a known quantity.

But “when selling securities in the market place starts,” that’s when it gets serious.

To continue reading: Unwinding QE will be “More Disruptive than People Think”: JP Morgan CEO Dimon

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Donald Trump’s Very Own Big, Fat, Ugly Bubble, by David Stockman

Since he’s been in office, Trump has done nothing to challenge Janet Yellen and the Fed’s bubble blowing. From David Stockman at dailyreckoning.com:

The overwhelming source of what ails America economically is found in the Eccles Building. During the past three decades the Federal Reserve has fostered destructive financial mutations on Wall Street and Main Street.

Bubble Finance policies have fueled an egregious financial engineering by the C-suites of corporate America. This bubble has skyrocketed to the tune of $15 trillion of stock buybacks, debt-fueled mergers deals and buyouts of the last decade.

The Fed fostered a borrowing binge in the household sector after the 1980s. It eventually resulted in Peak Debt and $15 trillion in debilitating debts on the homes, cars, incomes and futures of what used to be middle class America.

Liability Level 1

It also led politicians down the path of free lunch fiscal policy. By monetizing $4.2 trillion of Treasury and GSE debt during the last three decades, the Fed numbed the US economy from effects of crowding out and rising interest rates that would have come from soaring government deficits. This left the public sector impaled on Peak Debt.

Ever since Alan Greenspan launched Bubble Finance in the fall of 1987, public debt outstanding has increased by nearly 9 times. Measured against national output, the Federal debt ratio has risen from 47% to 106% of GDP.

Federal Debt Total 2

These actions have stripped-mined balance sheets and cash flow from main street businesses. The Fed has stifled economic growth while delivering multi-trillion windfalls into the hands of a few thousand speculators on Wall Street.

These rippling waves of financial mutation are why the US economy is visibly failing and why vast numbers of citizens in Flyover America voted for Donald Trump for president.

Ironically, even as he stumbled to his victory on November 8, Trump barely recognized that the force behind all the economic failure that he railed against was the nation’s rogue central bank.

To continue reading: Donald Trump’s Very Own Big, Fat, Ugly Bubble

Janet Yellen: False Prophet of Prosperity, by Ron Paul

Beware central bankers bearing prophesies of perpetual prosperity. From Ron Paul at ronpaulinstitute.org:

Federal Reserve Chair Janet Yellen recently predicted that, thanks to the regulations implemented after the 2008 market meltdown, America would not experience another economic crisis “in our lifetimes.” Yellen’s statement should send shivers down our spines, as there are few more reliable signals of an impending recession, or worse, than when so-called “experts” proclaim that we are in an era of unending prosperity.

For instance, in the years leading up to the 2008 market meltdown, then-Fed Chair Ben Bernanke repeatedly denied the existence of a housing bubble. In February 2007, Bernanke not only denied that “sluggishness” in the housing market would affect the general economy, but predicted that the economy would expand in 2007 and 2008. Of course, instead of years of economic growth, 2007 and 2008 were marked by a market meltdown whose effects are still being felt.

Yellen’s happy talk ignores a number of signs that the economy is on the verge of another crisis. In recent months, the US has experienced a decline in economic growth and the value of the dollar. The only economic statistic showing a positive trend is the unemployment rate — and that is only because the official unemployment rate does not count those who have given up looking for work. The real unemployment rate is at least 50 percent higher than the manipulated “official” rate.

A recent Treasury Department report’s called for rolling back of bank regulations could further destabilize the economy. This seems counterintuitive, as rolling back regulations usually contributes to economic growth. However, rolling back bank regulations without ending subsidies like deposit insurance that create a moral hazard that incentivizes banks to engage in risky business practices could cause banks to resume the unsound lending practices that were a major contributor to the growth, and collapse, of the housing bubble.

The US economy is already faced with several bubbles that could implode at any time. These include bubbles in student loans and automobiles sales, and even another housing bubble. The most dangerous of these bubbles is the government bubble caused by excessive spending. According to a 2016 study by the Mercatus Center, at least four states could soon join Puerto Rico and Illinois in facing bankruptcy.

Of course, the mother of all government bubbles is the federal spending bubble. Despite claims of both defenders and critics of the president’s budget, neither President Trump nor the Republican Congress have any plans for, or interest in, reducing spending in any area. Even the so-called cuts in Medicare and other entitlement programs that have generated such hysterics are not real cuts, but “reductions in the rate of growth.”

To continue reading: Janet Yellen: False Prophet of Prosperity

Once Only Blacks Were Enslaved, Now We All Are, by Paul Craig Roberts

Echoes of “They Got What They Wanted” from Paul Craig Roberts at paulcraigroberts.org:

The 4th of July is upon us. We will hear all sorts of patriotic BS about how wonderful we are and how thankful we are to our brave military which defends our liberty.

Not a word will be said about the destruction by the Bush and Obama regimes of the US Constitution, which once protected our liberty far better than any military action.

Not a word will be said about Washington’s 16 years of purely gratuitous war in the Middle East and North Africa that has destroyed in whole or part seven countries, sending millions of war refugees to overrun the Western World and change the quality of life for Western peoples.

Not a word will be said about Washington’s ongoing insane provocations of Russia and China and Iran and Syria and North Korea that are likely to end in nuclear Armageddon.

Speeches will celebrate “the exceptional, indispensable USA,” and fireworks will go off, preludes to the onrushing nuclear Armageddon.

While we listen to speeches of our wonderful fairy tale life, how lucky we are to be so beloved by our Great Democratic Government, the American Association of Retired Persons (AARP) has issued an all points bulletin urging its members to wake up and to urge their US Senators “to oppose the American Health Care Act passed by the House. This harmful bill gives billions of dollars to special interests while sticking ordinary Americans with huge premium hikes. It includes an age tax that would force older Americans to pay thousands of dollars more for their health insurance. it weakens Medicare and removes protections for people with pre-existing conditions. I urge you to represent my interests—not those of the drug and insurance companies.”

The last sentence astounded me. How is it possible that a lobby group for retired people can possibly believe that the House and Senate have any interest in serving the American people?

The House and Senate serve the people who have money, and those people are not the elderly. Thanks to the Federal Reserve, the elderly have not had any interest income on their savings for a decade.

To continue reading: Once Only Blacks Were Enslaved, Now We All Are

Work is for Idiots, by M.N. Gordon

The insiders acknowledge economic shortcomings, but never acknowledge the many economic problems caused by insider domination of both economies and government. Not surprisingly, their proposed solutions will do nothing to cure what ails the economy. From M.N. Gordon at economicprism.com:

The International Monetary Fund reported an unpleasant outlook for the U.S. economy on Wednesday.  The IMF, as part of its annual review, believes the U.S. economic model isn’t working as well as it could to generate shared income growth.

On the same day, in an unrelated interview on PBS Newshour, billionaire investor Warren Buffett offered a similar outlook:

“The real problem, in my view, is — this has been — the prosperity has been unbelievable for the extremely rich people.

“If you go to 1982, when Forbes put on their first 400 list, those people had [a total of] $93 billion.  They now have $2.4 trillion, [a multiple of] 25 for one.  This has been a prosperity that’s been disproportionately rewarding to the people on top.”

No doubt, U.S. wealth has become exceedingly concentrated into a very small number of hands over the last 40 years.  At the same time the middle class has been hollowed out into a shell of its former self.  Wages have stagnated.  Well-paying jobs that could support a family on a single income have disappeared.

On the other hand, asset prices, like stocks and real estate, have gone sky high.  These increases in asset price have served to magnify wealth at the upper end of the wealth spectrum while pricing out everyone else, particularly millennials with entry level incomes and massive student loan debt.

Certainly, asset prices will again crash like in 2000-02 and 2007-09.  But this won’t do anything to balance out middle class incomes.  What to do about it?

Both the IMF and Buffett offer several recommendations…

Insider Claims to the Pie

The clever fellows at the IMF identified with careful detail and delicate precision how to go about fixing the U.S. economy to “ensure a broad-based improvement in living standards.”  Their recommendations even include the “need to incorporate reforms on multiple, macro-critical fronts.”

We’re not quite sure what that all means.  Yet, fortunately, the IMF dumbed it down for us into a single sentence synopsis of what’s needed to improve living standards across the income spectrum:

“[B]uilding a more efficient tax system, improving education and developing skills, reprioritizing federal spending, improving the effectiveness of the regulatory system, and reforming the immigration and welfare systems.”

Piece of cake, right?  A splash of this.  A dash of that.  Before you can say Jack Robinson the policy makers have mixed up just the right policy elixir.  Higher living standards for all are attainable in our time.

To continue reading: Work is for Idiots

 

Bob Rodriguez – We are Witnessing the Development of a “Perfect Storm” by Robert Huebscher

Before he retired, Bob Rodriguez was one of the best portfolio managers in the business, and he often went public with his iconoclastic, and often spot on, views. An interview with Rodriguez by Robert Huebscher at advisorperspectives.com:

Robert L. Rodriguez was the former portfolio manager of the small/mid-cap absolute-value strategy (including FPA Capital Fund, Inc.) and the absolute-fixed-income strategy (including FPA New Income, Inc.) and a former managing partner at FPA, a Los Angeles-based asset manager. He retired at the end of 2016, following more than 33 years of service.

He won many awards during his tenure. He was the only fund manager in the United States to win the Morningstar Manager of the Year award for both an equity and a fixed income fund and is tied with one other portfolio manager as having won the most awards. In 1994 Bob won for both FPA Capital and FPA New Income, and in 2001 and 2008 for FPA New Income.

The opinions expressed reflect Mr. Rodriguez’ personal views only and not those of FPA.

I spoke with Bob on June 22.

In a recent quarterly market commentary Jeremy Grantham posited that reversion to the mean may not be working as it has in the past. What are your thoughts on mean reversion?

There will be a reversion to the mean. We are in a very difficult and challenging time for active managers, and in particular, value style managers. Many of these managers are fighting for their economic lives.

Given that I am no longer involved professionally in managing money, I believe the standards in the industry are being compromised; monetary policy has so totally distorted the capital markets. You are now into the eighth year of a period that is unprecedented in the likes of human history.

The closest policy period to what we have now would have been between 1942 and 1951, when the Fed and Treasury had an accord to keep interest rates low. Interest rates were artificially held lower to help finance the World War II effort. With the renewal of inflation after the war, a policy war developed between the Treasury and the Fed on the continuation of a low interest rate policy. The Treasury-Fed of 1951 brought this period to a close. But that is the only time we’ve had a period of nine years of manipulated, price-controlled interest rates.

This was a historical policy I discussed with my colleagues upon my return from sabbatical in 2011: what could unfold were controlled, manipulated and distorted pricing that could disrupt the normal functioning of the capital markets. The historical cycles that Jeremy would be referring to that entailed a reversion to the mean could be distorted, for a period of time, by this type of monetary policy action.

But I do not believe the economic laws of gravity have been permanently changed.

To continue reading: Bob Rodriguez – We are Witnessing the Development of a “Perfect Storm”

The Federal Reserve Is A Saboteur – And The “Experts” Are Oblivious, by Brandon Smith

The Federal Reserve, according to Brandon Smith, is hell-bent on deliberately destroying the US economy. From Smith at alt-market.com:

I have written on the subject of the Federal Reserve’s deliberate sabotage of the U.S. economy many times in the past. In fact, I even once referred to the Fed as an “economic suicide bomber.” I still believe the label fits perfectly, and the Fed’s recent actions I think directly confirm my accusations.

Back in 2015, when I predicted that the central bankers would shift gears dramatically into a program of consistent interest rate hikes and that they would begin cutting off stimulus to the U.S. financial sector and more specifically stock markets, almost no one wanted to hear it. The crowd-think at that time was that the Fed would inevitably move to negative interest rates, and that raising rates was simply “impossible.”

Many analysts, even in the liberty movement, quickly adopted this theory without question. Why? Because of a core assumption that is simply false; the assumption that the Federal Reserve’s goal is to maintain the U.S. economy at all costs or at least maintain the illusion that the economy is stable. They assume that the U.S. economy is indispensable to the globalists and that the U.S. dollar is an unassailable tool in their arsenal. Therefore, the Fed would never deliberately undermine the American fiscal structure because without it “they lose their golden goose.”

This is, of course, foolish nonsense.

Since its initial inception from 1913-1916, the Federal Reserve has been responsible for the loss of 98% of the dollar’s buying power. Idiot analysts in the mainstream argue that this statistic is not as bad as it seems because “people have been collecting interest” on their cash while the dollar’s value has been dropping, and this somehow negates or outweighs any losses in purchasing power. These guys are so dumb they don’t even realize the underlying black hole in their own argument.

To continue reading: The Federal Reserve Is A Saboteur – And The “Experts” Are Oblivious