Fed Fighting Deflation
Here is the money paragraph:
The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
Do you get the sense these guys are serious about fighting deflation?
December 17th, 2008 at 4:04 pm
Serious as a heart attack. The only problem, we are the ones that are going to have it.
To date Bernanke is following his 2002 helicopter speech at the Fed. Scary indeed.
You can never put Humpty Dumpty back together.
We are at step four:
http://www.theglobeandmail.com/servlet/story/RTGAM.20081211.wreynolds1212/BNStory/Front?cid=al_gam_globeedge
December 17th, 2008 at 4:05 pm
I can guarantee you they’ll succeed in combating inflation. In a fiat currency system (as was not the case during most of the Great Depression), printing money, as opposed to digging for gold or silver, determines whether we’ll have inflation. Velocity can go nearly to zero, and if you print enough dollars, still you’ll beat inflation. It won’t change anything real, but no matter, rising prices will make it SEEM things are getting better. And we’re all about deluding ourselves that things are always going to be better. Trees grow to the sky. Until they topple over.
The thing is, this is not even a good application of monetary theory. Things are not bad because there is not enough credit. Things are bad because the illusion of demand created by too much credit has collapsed.
December 17th, 2008 at 4:05 pm
Do you get the sense these guys are serious about fighting deflation?
As serious as a $500 loaf of bread!
December 17th, 2008 at 4:06 pm
er, that should say combating “deflation”
December 17th, 2008 at 4:12 pm
I hear that Las Vegas casino traffic is down. Here’s my suggestion: they should make lots and lots and lots of new chips. They should make truckloads of them; they should drop them from helicopters. Having lots and lots of chips would make people come to Las Vegas and gamble lots more.
What could go wrong with this genius idea? After all, it is stolen directly from the Fed’s anti-deflation plan.
December 17th, 2008 at 4:32 pm
I get the sense that they don’t have a clue about how true markets function. Their Ivory Tower lives have lead them astray of how the real markets work – how it functions by having many, many participants giving and taking prices. We are Fu*ked!
December 17th, 2008 at 4:32 pm
Bought Oil (USO) today. Seems like a win-win. Sold call options for $36 exp Friday for $100 each, priceless.
December 17th, 2008 at 4:43 pm
@ Curmudgeon: “It won’t change anything real, but no matter, rising prices will make it SEEM things are getting better. And we’re all about deluding ourselves that things are always going to be better. Trees grow to the sky. Until they topple over.”
Wait a minute…what you described is exactly right, only it already happened over the last 75 years and I just heard somebody yell TIMBERRRR! Going forward, the debt crash is deflationary, no doubt about it. Any money created will go straight to money heaven…or down the vortex, whichever metaphor you like best.
December 17th, 2008 at 4:46 pm
Time to buy physical gold!
December 17th, 2008 at 4:48 pm
Off-topic: Chrysler
Chrysler will stop production all plant on Dec. 19th. It’s not the same thing, but for some reason this reminds me of when the air traffic controllers went on strike in the early 1980s. They never went back to work. Pres. Reagan replaced them with non-union controllers. Could this prove to be the end of Chrysler? Could Chrysler’s veiled threat to the Bushies that they need the money or else, cause Bush to decide to “let them go”, to make them the sacrificial lamb? I felt over a year ago that Chrysler would not survive what was then still the coming recession, and I still can’t see them being saved by the government — again.
Conversely could Chrysler have been told by the Bushies, “you are privately owned, therefore, you are on your own”, so they decided to shutdown?
December 17th, 2008 at 4:50 pm
MAL:
I think gold will outperform during the deflation, but may lose money on an absolute basis. Wait for the deflation to end then buy gold miners for the leverage.
December 17th, 2008 at 4:50 pm
I think gold is too high. In today’s world you need someone else to want to buy it at a higher price for it to go up. With everyone broke and the US far away from the gold standard now I doubt gold will go significantly higher. However, oil in today’s world is a necessity. People need oil to heat homes no matter how bad things get. Both GOLD and Oil are pegged to US $. However, when you look at the charts gold hasn’t lost value and oil has significantly.
I’d much rather err to the side of one coming off a clear bubble and has already lost signifcant value. I would have bought gold otherwise but who can afford it?
December 17th, 2008 at 4:53 pm
The pain for holders of SRS may not be over just yet. IYR is still a bit below its 50 day MA. I think there’s a good chance that IYR will get above the 50 D.M.A. and stay there for a week or two before the short sellers finally get some relief.
(Anyone who can figure out how to time this thing has a realistic shot at a 5:1 payoff).
December 17th, 2008 at 4:57 pm
jmborchers @ 4:50
Just looking at the technical picture, it looks to me like GLD could head back down to 70 before long. However, over the course of the next three years, I think gold is going a lot higher.
December 17th, 2008 at 4:58 pm
NYSE Bulls up to 47%…was 4% at the bottom.
December 17th, 2008 at 5:00 pm
I’d be more worried it breaks the 65. Gold bought in 2006 has doubled in 2 years. That’s always a sure sign of asking for trouble. It doesn’t matter what asset it is.
December 17th, 2008 at 5:01 pm
For people who are lazy, a simple trade would be to go long GLD and short SPY (in equal amounts). However, I would wait for a pullback in gold first.
December 17th, 2008 at 5:04 pm
jmborchers @ 5:00
Maybe GLD will drop below 65. But whatever happens, I think it very likely that the bull market in gold will begin well before the bull market in stocks. Take a look at the charts of gold and SPX over the period 2001 to 2006.
December 17th, 2008 at 5:04 pm
The only way one could assume gold would go higher is if the world looks brighter. Otherwise it’s not worth as much. Since Nixon abolished the gold standard gold’s value doesn’t necessarily have to move with the $ or against it. It’s on it’s own. Gold will move on a perception of inflation, however it’s quite clear we don’t have inflation so why should it be 850 then? It’s clear it shouldn’t.
December 17th, 2008 at 5:19 pm
Is anyone else catching this USD/JPY meltdown??
Looks like the USD/CAD is ready to follow any moment.
December 17th, 2008 at 5:21 pm
jmborchers @ 5:04
I appreciate your response. But gold will “sniff out” inflation long before it becomes obvious to the majority.
Also, you’ve got to give a lot of weight to the currency issue (EUR/USD, USD/AUD, USD/CAD, USD/JPY).
December 17th, 2008 at 5:25 pm
ButtoMcFarty @ 5:19
“Is anyone else catching this USD/JPY meltdown?”
Yeah. JPY used to be the doghouse currency.
We’re the new doghouse.
December 17th, 2008 at 5:34 pm
@JMBorchers…sounds lucid re gold, but I bought a little anyway. Just a hedge against a black swan currency disaster. Probably paid way too much for it, but didn’t bet the farm, just bought a little insurance.
I agree that oil looks mighty interesting. It can’t fall much more, or it won’t be worth pumping out of the ground.
December 17th, 2008 at 5:34 pm
They are serious; but the question is, as always, they are ahead or behind the curve? Ben seems dependent upon data, and data is always after the fact. Therefore, it seems he will always be behind the curve.
This may be even truer now as he/they may wait to see if the liquidity they have injected so far does any good. And if it doesn’t work and he waits too long, the recession worsens and drags on into 2010. Roubini is still saying deflation is a given in 2009, so that seems to indicate Ben should start printing more money and buying long-Treasuries now. Otherwise deflation will get its grip on the consumer’s psyche.
On the other hand, if they move too quickly, inflation will break out sooner and could be much worse than expected.
As with most things in life, timing is everything. So far his timing hasn’t been real good, IMO. Why would it get any better now?
December 17th, 2008 at 5:38 pm
Months ago I sent a note to friends and clients with this paragraph and it’s still relevant.
“It is Mr. Bernanke’s thesis that the Great Depression was ‘avoidable’ by dramatically increasing the money supply. His thesis will be put to the test. Can an economy really avoid recessions and depressions? I believe that herding behavior, mass psychology and sentiment rule markets. We cannot forget that “markets,” while made up of large institutions, are run by people with emotions and feelings. When the mood of the market turns negative, there may be few remedies. The best action may be to simply let the fever run it’s course. Central Banks cannot force banks to lend, nor can they force consumers to spend when fear and anxiety abound. The Fed’s primary weapon is to shove massive amounts of money (liquidity) at the problem in order to “reflate” assets. To the chagrin of the government, the market has shrugged it off. The government’s efforts may slow the decline and slow down the inevitable “debt unwind,” but it will not work. The natural workings of human nature: herding behavior, fear and greed, must play out.”
It’s an overused expression, but I really think these guys are pushing on a string. It would be better to just print Two trillion bucks and send $50,000 bucks to everyone who is hitting the street newly unemployed. And then used the leftover money to set up huge DIP facilities to facility Ch.11 filings for the viable, but overly leveraged firms.
- AT
December 17th, 2008 at 5:42 pm
In a fiat world, debt deflation should lead to lower gold, lower oil, higher dollar.
About gold sniffing out inflation, the fed is creating its gazillions at a slower pace than the rate at which debt is collapsing. So, there is really nothing to sniff out! As for historic analogy, it took till 1945 for the Keynesian spending to overshoot the deflationary forces. Even when it did, it only led to one year of serious inflation.
About the dollar, our wheeling and dealing over the last decade was funded in part by cheap Japanese ZIRP money leaking here through the carry trade. To the extent that this crisis is related to the unwinding of those trades, JPY will soar due to the smaller base after all the Yen debts are settled, followed by USD which should outperform the “rest”. In fact, with the yen soaring, I’m sure there are going to be some margin calls that will make the unwinding feed on itself. So, no…the CAD will not follow JPY, it will instead track downwards like the EUR and the rest of the world for that matter.
December 17th, 2008 at 5:43 pm
Here is my big problem – their policies change in a heartbeat.
Yes, they may simply be responding to market conditions, but their lack of clear policy AND ability to communicate that message to the market (in a way that even the general public understands) is why I don’t trust what is coming out from the Fed/Govnt at this point.
Deflation may be the concern from the Fed today, but apparent reason it may not be a priority tomorrow. It’s all most they have attention span of a puppy at this point.
Van
http://vansantos.com
December 17th, 2008 at 5:53 pm
Re- USO
Might be a tad early but bought some last week. Storage is filling up but this is due to buying near term contracts and selling next year delivery for around a 10-11% profit including all storage costs. Setting up for a good whiplash up at some time.
December 17th, 2008 at 5:53 pm
DL if you are ahead of the curve and more deflation comes than you expect gold will get crushed as oil has. Of course oil can go down more too and I’m considering that as part of my plan but with the world needing oil more than it needs gold I’ll pick oil and sell the calls against it.
December 17th, 2008 at 5:55 pm
@AT: Agree with everything you said. I would add: the more the Fed does, the less confidence/trust there is in the “markets”. The masses have lost trust/confidence in the system. Until that’s restored, we’re nowhere and the Fed’s actions only seem to be making people even more skittish, hence, they’re making matters worse, not better.
December 17th, 2008 at 5:55 pm
Beware – “Quantitative Easing” is Hallucinogenic
Wed, 17 December 2008 By Gary Dorsch, Editor, Global Money Trends
The Bernanke Fed can’t wait to experiment with QE, by printing unlimited amounts of US-dollars out of thin air, and monetizing the US Treasury’s debt.
However, “Quantitative Easing” is a very dangerous hallucinogenic drug – it produces changes in perception, thought, and feeling, ranging from distortions of what is sensed (illusions) to sensing objects where none exist (hallucinations). QE can transmit false perceptions about the health of the economy and the direction of the stock market.
http://news.goldseek.com/GoldSeek/1229538290.php
December 17th, 2008 at 5:56 pm
I also posted this morning that GS announced $2B loss but without the $10B gov’t injection would that have to be a $12B loss or $30 per share instead of $5?
December 17th, 2008 at 6:00 pm
@KJ Foehr, OT Chryser
Yeah, Chrysler will shut all 30 plants in USA but still trying to get production of small cars going in China. Chrysler Asia chief Philip Murtaugh developing a new deal with Great Wall Motors after the Chery deal finally collapsed last week. From what I’ve heard the aim is not necessarily export to the US but other areas where car sales are actually growing. But Chrysler’s concern is that standards be high enough to introduce the models into the US. Just where will their bailout dollars go?
December 17th, 2008 at 6:01 pm
Any company strapped to China and Asia area is screwed.
December 17th, 2008 at 6:02 pm
@sinomania: So, we should all move to China and make $4/week? Is that where we’re headed? The Big Three stay “open” in China but gone in the U.S?
December 17th, 2008 at 6:03 pm
DMR, I wouldn’t be so sure…CAD has commodities up the ying-yang. Gold and Silver do good in both inflationary and deflationary times. Anytime there are uncertain events on the horizon. These “interesting times,” we live in most definitely are uncertain.
December 17th, 2008 at 6:03 pm
I actually think much of the economy is about to go under the table. Barter, non-traceable trade, cash, etc. Deflation, yes, officially….
Banks are toast.
December 17th, 2008 at 6:06 pm
Mannwich @ 5:55 pm
“…the Fed’s actions only seem to be making people even more skittish, hence, they’re making matters worse, not better.”
Indeed. It is a principle of government action that it always accomplishes the exact opposite of its stated intent. Things aren’t really all that bad, yet. But just wait– we’ve got the fed on the job. It’s gonna get lots worse. Guaranteed. Until they give up on the string.
December 17th, 2008 at 6:06 pm
“Any company strapped to China and Asia area is screwed.”
Seems shipping traffic from the far east is a little slow:
Big ship eats into the view, restaurant business at pier
http://seattletimes.nwsource.com/html/localnews/2008528828_bigship170.html
December 17th, 2008 at 6:20 pm
I’m watching the US $ collapse.
December 17th, 2008 at 6:20 pm
Andy Tabbo @ 5:38
“It would be better to just print Two trillion bucks and send $50,000 bucks to everyone who is hitting the street newly unemployed”.
I’m all for that. But it wouldn’t cost nearly the two trillion cited. (Also, you’ll need some money to pay off depositors when banks fail).
December 17th, 2008 at 6:20 pm
Big stock market crashes coming very very soon.
December 17th, 2008 at 6:22 pm
KJ Foehr @ 5:34
“…the question is, as always, [are they] ahead or behind the curve?”
Problem is, they create a new “curve” every time they intervene.
December 17th, 2008 at 6:24 pm
Here is my big problem – their policies change in a heartbeat.
Yes, they may simply be responding to market conditions, but their lack of clear policy AND ability to communicate that message to the market (in a way that even the general public understands) is why I don’t trust what is coming out from the Fed/Govnt at this point.
———–
I dunno. Ben is doing EXACTLY what he told us he’d do in his 2002 (?) speech. That is quite transparent to me.
He’s basically convinced everyone about deflation (that’s his goal) and that has given him the right to print, print, print!
Now he can easily devalue the dollar, exactly what he wanted in the first place in order to deflate the American debt and make the rest of the world pay… because we all know that more than 50% of the debt is held by foreigners.
Can’t get any clearer than that!
December 17th, 2008 at 6:30 pm
Barry:
I was listening to the news in the car while I was stocking up on dry goods today and they had someone from New York telling us how times are tough. Apparently prices are not coming down and 88 (?) new taxes have been created.
Do you have any input?
December 17th, 2008 at 6:38 pm
“Fed Fighting Deflation”
Great! True from The Curmudgeon: “It is a principle of government action that it always accomplishes the exact opposite of its stated intent.” In this riddle that would indicate they’ll create inflation. Which has been my bet….all along.
December 17th, 2008 at 6:40 pm
Pat G:
To assume you would have inflation indicates the other worldwide banks won’t print as well. I do believe every gov’t will print out of this problem. Therefore, if everyone does the same thing the effect is nill as with algebra.
December 17th, 2008 at 6:51 pm
This calls for a TRANSLATION:
“The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level.”
We will manipilate the crap out of the markets by buying futures with your money. We will also use proxies to sell puts to bears so we can break them later with a short squeeze. And nobody is allowed to look at our balance sheet so we’ll just make it look good in the media.
” As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.”
We are still going to keep using your money to cushion the derivative meltdown to save our pals in the big banks and hedge funds. Yeah, you won’t get any discount on house buying or get a break on you mortgage payment but you have to understand that the little guy doesn’t have a hell of a lot of leverage here.
‘ The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.’
Boilerplate. You need to look at how we define “households” and “small businesses” and then you will “get it”.
” The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.”
We will go forward to avoid going backawards because we are in a flat out panic to save the rich leisure class. This is serious shit, folks. Ri ch people may have to go back to work. We can’t have that.
December 17th, 2008 at 6:54 pm
LOL AGG, good translation.
December 17th, 2008 at 6:57 pm
I think gold is too high. In today’s world you need someone else to want to buy it at a higher price for it to go up. With everyone broke and the US far away from the gold standard now I doubt gold will go significantly higher. However, oil in today’s world is a necessity. People need oil to heat homes no matter how bad things get. Both GOLD and Oil are pegged to US $. However, when you look at the charts gold hasn’t lost value and oil has significantly.
@Jmborchers
you posted a little below this that you are watching the $ collapse, I think you do not understand gold…maybe at all
do some research or read some Faber, there was even a very good post in the Cafe just a week or so ago about the shadow price of gold, i’m not a buyer of gold at these levels, if it drops again as it did a few months ago it is a buy and SB is correct about the miners after deflation, a simple look at history shows you this will be a good place to be.
December 17th, 2008 at 6:59 pm
When it comes to making money by figuring that history will repeat is a grave mistake of the poor and those bankrupted by the markets.
December 17th, 2008 at 7:00 pm
danm Says:
December 17th, 2008 at 6:30 pm
“I was listening to the news in the car while I was stocking up on dry goods today…..”
That is an extremely funny opening line.
December 17th, 2008 at 7:01 pm
jmborchers @ 6.40 PM
The USD is an asset. If they keep printing more of them out of thin air like they have been doing then the USD will become inflated. The rest of the worlds’ major banks are printing right along with the FED, albeit at a slower rate. Which means that ALL money will become inflated. We all know how badly bubbles end.
December 17th, 2008 at 7:11 pm
jmborchers,
I don’t think I’m speaking of history in the same sense you are. Understand my comment to represent where I think the price of gold is going.
December 17th, 2008 at 7:11 pm
Right will be unless they take it back later when we start to see inflation. They can easily unwind it because the chance of a fast economic recovery now are relatively low. We would only need worry if we had a sudden V shaped economic recovery.
December 17th, 2008 at 7:22 pm
But there are two problems with your theory. First the FED is incompetent. Look at how they’ve fought deflation. By the time they start to sop it up, it’ll be too late. Second, all the world’s banks have to sop it up too. More problems.
December 17th, 2008 at 7:22 pm
jmborcher long USO and selling calls. Why not just sell puts? Same thing.
Also, what has been rising lately as the US reduces interst rates? Oil down, gold and silver up.
Gold is a store of value. Oil is a commodity.
December 17th, 2008 at 7:24 pm
Ben, Gold is more a fear play than a monetary play. Faber is way wrong. The time to buy gold was before the commodity boom. Gold will collapse; it is inevitable. The only question to ask is this.
What gives gold it’s value?
December 17th, 2008 at 7:31 pm
“What gives gold it’s value?”
Fear of hyper-inflation. Fear of worthless money. So no, gold is BOTH a fear and a monetary play.
December 17th, 2008 at 7:31 pm
Could do it it either way. Apparently my broker has had some problems with put sellers going broke this year though Mud so they don’t allow it anymore, lol.
December 17th, 2008 at 7:33 pm
If US $ is worthless how is Gold valueable? It’s impossible.
December 17th, 2008 at 7:37 pm
Oil was down $3.50 a barrel today, a 4 year low. Gold was up $25.80. While oil and gold are lumped into a sector labeled; commodities, as mudpuppy pointed out, one is a store of value and the other is needed to make machines run better.
December 17th, 2008 at 7:39 pm
“The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States’ suspension of convertibility from dollars to gold. This created the unique situation whereby the United States dollar became the “reserve currency” for the states which had signed the agreement.”
http://en.wikipedia.org/wiki/Bretton_Woods_system
December 17th, 2008 at 7:40 pm
If it comes down to a metal…silver always made more sense to me.
1 oz silver coin = groceries
1 oz gold coin = herd of goats
December 17th, 2008 at 7:40 pm
Who think stocks sell off again tomorrow?
December 17th, 2008 at 7:41 pm
Gold IS money. It’s been used for that purpose for more than 5,000 years. You can’t simply print more of it. That’s why it’s a store of value. Like real estate or precious stones. Hard assets.
December 17th, 2008 at 7:43 pm
Gold isn’t money. If everyone is broke who is going to buy it from you for an inflated price? LOL
December 17th, 2008 at 7:46 pm
@AGG: That is sadly hilarious.
December 17th, 2008 at 7:46 pm
“In the face of increasing strain (preventing our government from creating more debt because of the USD’s link to it), the system collapsed in 1971, following the United States’ suspension of convertibility from dollars to gold.”
That was the first lynch pin that was seared which in effect, sealed the USD’s fate.
December 17th, 2008 at 7:47 pm
There is a difference in being broke or insolvent.
December 17th, 2008 at 7:48 pm
Pat I’d agree with you if we were back in the days where people were used to trading gold back and forth. Today go to a store and try to buy something for gold and see what happens. They have no idea what the value is. And what more I hope when you are referring to hard assets you aren’t referring to GLD which is a paper asset which has claims to gold. Those are two very different things.
December 17th, 2008 at 7:50 pm
Pat all those other countries agreed to it too. Asia will go under far before the US because they are more dependant on us. That’s the good side of importing more than exporting.
December 17th, 2008 at 7:56 pm
Now hear this:
I heard Maria Shapiro was just named to be the Obama administration SEC chairperson. Does anybody here know her story? Will she do a good job?
December 17th, 2008 at 8:00 pm
I don’t know. Here’s her site.
http://schools.portnet.k12.ny.us/~mshapiro/
December 17th, 2008 at 8:01 pm
Barack Obama, the US President-elect, is to name Mary Schapiro, a former commodities regulator, to be the next chairman of the Securities and Exchange Commission (SEC), it emerged last night.
Ms Schapiro is currently head of Wall Street’s self-regulator, the Financial Industry Regulatory Authority. She served under the Clinton administration in 1994 as chairman of the Commodity Futures Trading Commission and as an SEC commissioner from 1988 to 1993.
While every new US President appoints his own chairman of the Wall Street watchdog, the swift choice comes at a time when the SEC’s current head – Christopher Cox – is under fire for failing to spot the world’s biggest ever fraud. Last week, Bernard Madoff confessed to his sons that he had created a Ponzi fund with estimated losses worth $50 billion.
Mr Obama is expected to announce his choice about the next SEC chair as early as today.
December 17th, 2008 at 8:03 pm
What stores? If the dollar hyper ventilates they’ll be no need for them. But you will still have to buy the things you need to stay alive. Gold and silver functioned as money in the U.S. through the first couple of decades just this past century. Some countries which have currencies still use gold and silver as money, interchangeably. Going back to a time when precious metals functioned as money isn’t an impossibility. No, I’m not referring to paper GLD. I take delivery. Asia will not go under before the U.S. because those people are savers, we are spenders. And as far as their dependency on us here’s a quote from an article I’m currently reading between these postings: “For all of last year, the current account deficit totaled $731.2 billion, which meant the country needed to borrow $2 billion a day from foreigners to finance its activities.” Because of our lack of savings, we actually need them more than they need us. But no nation is an island.
December 17th, 2008 at 8:04 pm
Maybe this bio will be more suitable for you AGG.
http://www.sec.gov/spotlight/seniors/bios/mary_l_schapiro.pdf
December 17th, 2008 at 8:05 pm
Now I remember something about Schapiro. She got into some kind of ruckus with Greenspan and Rubin over some trading “policies” in futures trading. If she didn’t get along with them, she may be good for the job.
December 17th, 2008 at 8:07 pm
jmborchers,
Thanks. I’m on it.:
December 17th, 2008 at 8:08 pm
AGG that’s pretty interesting. She was part of the old Plunge Protection Team AKA (Presidents Working Group).
“Ms. Schapiro joined NASD in 1996 as President of NASD Regulation and was named Vice Chairman in 2002. Before assuming her present duties, Ms. Schapiro was appointed Chairman of the federal Commodity Futures Trading Commission (CFTC) in 1994 by President Clinton. The CFTC is responsible for regulating the U.S. futures markets, including financial, agricultural and energy markets. As Chairman, she participated in the President’s Working Group on Financial Markets with the Secretary of the Treasury and the chairmen of the Federal Reserve Board and the Securities and Exchange Commission (SEC).”
We can see the gov’t is setting up for something big to happen. Or to no holds barred to fight it. They picked Bernanke for his speach on depression too.
December 17th, 2008 at 8:21 pm
@DKTrader, no idea on tomorrow, but the market range is getting narrower by the day. It has to break out in one direction or the other here soon.
It seems to want to go up, but the S&P has taken several runs at 920 in the past 2 weeks and failed all of them.
If we get 500k on job numbers tomorrow market goes down. If we get a million, up 300 points on the basis that we’re closer to peak unemployment than we were so there’s less bad news to come. (Err, no, I’m not serious).
December 17th, 2008 at 8:24 pm
DP Fed went to almost zero. The number tomorrow has got to be bad. I think it’s highly likely the Fed used that number in their meeting earlier this week.
December 17th, 2008 at 8:25 pm
Asian fabs are shutting down for weeks. This is the first time this has happened that I can remember. Hynix semi says idling and trying to sell the entire idle factory. Now that’s interesting. Say it’s idle and then try to sell it. That ought to get a good price.
December 17th, 2008 at 8:27 pm
I suspect you’re right. I bought QID when we failed to break 920 again. If we do break 920 I’ll sell it. I realize it’s odd to peg buying QID to the S&P, but it’s worked 3 times already for quick easy trips from mid 60s to mid 70s.
December 17th, 2008 at 8:59 pm
The price action on the S&P is starting to get a little worrisome for bulls. The fact that we couldn’t power through 920 day is a little disturbing. The whole pattern on the futures and cash is starting to resemble a “rising wedge” type formation. If we power significantly higher…i.e. break 940…then it negates the rising wedge action…but ladies and gentlemen, please be very concious of that uptrend line on the equity charts. If that uptrend line breaks, you need to start exiting long positions, post haste.
I still think we have weeks of whipsaw coming before we finish this fourth wave, but given the way this thing is struggling near 920, it’s becoming a little troublesome for the bullish view of seeing 1000.
- AT
December 17th, 2008 at 9:04 pm
Anyone catch the action in crude oil lately. The US dollar is basically collapsing, the stock market has been doing well from the Nov. lows….and the oil market is actually 20% lower in the same time frame. That is a shockingly bad performance from crude oil. The front spread hit a HISTORIC contango level today. I’ve never seen anything like it, ever.
I want to be long energy. But, like the UGLY stepchild, he’s tough tough to love right now.
- AT
December 17th, 2008 at 9:35 pm
The best take on the “deflation fighting” I came across today was from John Kemp (Reuters)via the FT.
excerpt …
“Bizarrely, Bernanke and Co are in fact inviting [treasury] investors to bet the policy will fail, the economy will remain mired in slump for a long period, deflation will occur and interest rates will remain on the floor, as Japan’s have done since the 1990s.”
December 17th, 2008 at 10:49 pm
Andy Tabbo @ 8:59
Speaking of “rising wedges”, do you have a thought on the chart of the VIX over the last three months?
It seems to be carving out some sort of a triangle. The obvious question is, which way will it break? (I say upward).
December 17th, 2008 at 11:00 pm
Andy Tabbo @ 9:04
As for crude oil, couldn’t the upward sloping forward curve be regarded as a sentiment indicator? It would seem that the contrary view would be that oil is heading lower. Certainly, if we get a selloff in the SPX (as I am expecting in January), that is likely to pull oil down.
(But yes, there are some weird interrelationships lately between EUR/USD, oil, and treasuries).
December 18th, 2008 at 12:30 am
DL: great question on VIX. I don’t actually trade that or chart it, but i just took a look…there’s nothing bearish about that chart…..37 ish looks like huge support.
in re: oil
used to be a real life physical oil trader…the shitty cracks..the huge contango…nothing looks good…however….i’m now a technical trader and I can see the ‘light’ at the end of the tunnel….
sentiment is hugely negative. this is the time of the year for oil to rally. the dollar is going down the toilet. my bias is to get long summer rbob cracks and then get net long oil into the $35 level….we may see $30 oil, but I think we’re setting up for massive rally in oil very soon. Tho’ I must admit I can see some near term downside.
December 18th, 2008 at 9:17 am
Per Shapiro…..from Denninger
“Shapiro was tapped by Obama to head the SEC. Bloomberg hails her as someone who can “overhaul” the SEC. I see her as “more of the same.”
Why? Well, let’s just keep it simple – she’s a top brokerage regulator – a former CFTC head and FINRA CEO. How did Madoff manage to get under her radar, specifically, as CEO of FINRA?
Nor does it stop there. It appears that Shapiro appointed one of Madoff’s sons to a position that oversaw disciplinary actions made by FINRA!
So there you have it. The hand-jobs under the table in politics have certainly not changed with the election of a new President.”
http://market-ticker.denninger.net/archives/693-Bawahahahahaha-Change-Where.html
December 20th, 2008 at 8:36 pm
I don’t get it.
These guys are serious about something, but I don’t see how buying toxic assets, keeping treasury returns ultra-low and making sure banks can’t fail fights deflation. I mean, I understand that they are trying to reflate the housing bubble, so that banks don’t go bust, but I don’t get the connection to deflation.
All this means to me is the clowns who bought houses they can’t afford will get to keep them a little longer. I think maybe the Fed’s making these moves under the guise of fighting deflation, but, quite frankly, aside from the drop in gas prices, I don’t see any meaningful evidence of deflation. Have retirement communities cut their fees? Is your doctor charging less? How come milk’s not under $2 a gallon? Will we all get jobs in the mortgage business to pay for our refinanced houses? Maybe the Fed can hire us all as regulators.
One thing I understand that Greenie and Ben never will is that it’s a whole lot easier to maintain price stability than to get it back once you’ve lost it.