Central bankers ready if markets don't 'obey'

As the walls close in on central bankers and their inane policies, they seem ready to fight with the only weapon they know how to use: the printing press.

By Bill_Fleckenstein Aug 30, 2013 3:45PM

Wall Street bull © CorbisThough it may have largely been lost in the shuffle of Middle East headlines, sales of new homes fell 13.4% in July to 394,000, which was a far cry from the 487,000 forecast by the consensus and the biggest variance from expectations in more than five years. In addition, sales in June were revised down to 455,000 from 497,000.

 

Those numbers are proof that whatever logic the real estate Pollyannas, who said mortgage rates weren't going to affect demand for new homes, were using is totally false.

 

More than just in the neighborhood 

First, hats off to real estate analyst Mark Hanson (aka Mr. Mortgage), who completely nailed this statistic a few weeks ago and has gotten just about every data point on the housing market right recently. By extension, that means all the economic bulls who predicated their thinking on a "sustainable" housing recovery -- and that includes the Federal Reserve (based on what I have heard various Fed heads say) -- need to go back to the drawing board.

 

In light of that, as well as the seemingly sudden importance of unrest in Syria, I am reminded of a point I have made many times, though not recently: Markets these days seem to discount next to nothing. My guess would be that is a function of quantitative easing, computer-driven trading and so many "professional" babysitters of Other People's Money trying to stay close to their benchmarks.

 

A game of wait, then hurry up 

While computers can read press releases, listen to conference calls and compare the price action at any given moment to any day in history, slicing and dicing the data in a million ways, what they probably don't do is attempt to discount future big-picture developments; their main strategy is being able to react faster than the next guy.

 

Thus, large geopolitical problems or long-simmering macro problems don't matter until they start to matter, at which point discounting that should have taken place along the way tends to occur in a short space of time. If I am correct in this thesis, it means there are going to be plenty of prospective dislocations as various problems come home to roost.

 

The hot air beneath our wings 

Obviously, the unrest in various parts of the globe is going to add pressure on the Fed not to taper, but the employment report next Friday will have a fair amount of say in terms of swaying market opinion.

 

However, the inclination of central bankers, I think, was typified by Mark Carney, the head of the Bank of England, who said on Wednesday that the BOE stood ready to add stimulus if investor expectations for higher interest rates rise too far and undermine the recovery. If he feels that way, the Federal Reserve probably does as well.

 

In a perfect world, the Fed would announce at the September meeting of the Federal Open Market Committee that it is not going to taper (and we can see where stock and bond rallies want to fail), [RD(1] which should help the world see that the Fed is trapped: Its policies don't work, yet it can't stop pursuing them.

 

To wit: Four years ago Ben Bernanke and company talked about exit strategies. Now, they discuss only reducing the amount of monthly money printing from $85 billion to $70 billion -- and if they try to do even that, they are going to find out they have to reverse gears and go the other way.

 

Only the bond market can put this insanity to rest.

 

I believe we are very close to the world realizing that the Fed is trapped. The only question is when will people realize it and understand the consequences?

 

Around here we call them 'wish doctors' 

Speaking of trapped central bankers, an Aug. 22 article in the Financial Times by Gillian Tett, headlined "Central bank chiefs need to master the art of storytelling," concluded with what I thought surely had to be a spoof.

 

"The next Fed chair also needs to be a masterful storyteller and cultural analyst, who can read social sentiment, shape norms, (re)create trust and persuade us all to think in a manner that suits the Fed's economic goals, without us even noticing.

 

"Somebody, in other words, who can cast spells with both their spreadsheets and words. In short, what is needed is nothing less than a monetary shaman."

 

But then I realized which newspaper she was writing for, and that she was deadly serious.

 

It's a crying sham 

I think Tett’s soliloquy perfectly captures how far the pendulum has swung from the gold standard -- and that it can go no further in this direction.

 

What we need, in her view, is someone who can make us believe that reality is different than it is. This is an absolutely priceless vignette to save for the future to illustrate how detached financial thinking has become from anything resembling common sense. Of course, the joke is on her, as she doesn't realize that what she wants is exactly what we already have: charlatans who have no shame.

60Comments
Aug 30, 2013 10:24PM
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Once the free $ dries up the market will fall. The entire "recovery" that we have heard about is a sham. How can there be a recovery with no jobs?

 

Anyone who believes this is a recovery is a fool. That includes you Barry!!!!!

Aug 30, 2013 6:07PM
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I expect September headlines to be more about the economy than what is happening in Syria. Rather than there being an economic recovery, I'm of the opinion that we're headed downward again. How far down we go is anyone's guess. 
Aug 30, 2013 8:53PM
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"Markets these days seem to discount next to nothing." But "price in" everything. Lying, cheating, two-timing, cold-heartedness, cynicism, home-wrecking, open disconfirmation of reality and facts, no consequences for run away greed and avarice -- all "priced into" the market. The government has even started bailing out failing cities. Detroit and the state of Michigan just got $100 million of your tax dollars from President Obama to tear down abandoned buildings. This money will be going right into the pockets of those same criminal shyster politicians and banksters, the monied elites, the corporate oligarchs who destroyed Detroit and the economy of this country. This is going to end very badly.
Aug 30, 2013 7:34PM
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The markets already know what number they want no matter what the news is. Its been manipulated from the start and you would have to be a plain idiot to think it isnt!!
Aug 30, 2013 8:52PM
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 "THE BOND MARKET"      

 

JUST another way of saying the "Government will bail us out". The Government buys most of the bonds.

 

WE have allowed ourselves to "Bail Out" every major lending institution we have in the U.S. with no strings attached. We also bailed out the Stock Market. And by "We" I mean the "U.S. Government". But in doing so we "The U.S. Government" has failed ourselves "The American People", who are suppose to be the U.S. Government.

 

OH, we allowed those with great wealth ample time to unload bad stocks, (and they continue to do so in an alarming rate), but we failed to create blue collar jobs in the process.

 

NOW we are  looking at a housing market that will make the stock market look like child's  play when it comes to a recovery. No one wants to give in even a little especially "The Banks", who tend to lose a great deal of money if they were to sell foreclosed houses they have now on their books at market value. BUT wait didn't we bail out the "Banks". I guess they forgot..

 

WHAT must the "Federal Reserve" do. Leave interest alone and at best lower it. Don't shut down Freddie or Fannie increase even more monies available to them which will  allow first time home buyers to  purchase their dream home. Every home taken off the market allows us to be that much closer to being able to build a new house and every new house creates 4 to 5 "NEW" jobs..

 

AND I can't express this enough, the "BANKS" we bailed out, it's time we called in our markers and tell them to unload the foreclosed homes, which in turn, will create a true market value for houses or this will be the worst depression since the history of America.. Stocks will drop 50% to 70% and money will go under the mattresses, people will hoard every thing from canned food to clothing. WE Can't allow this to happen and it's not to late..

 

 

Aug 30, 2013 7:06PM
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" In short, what is needed is nothing less than a monetary shaman."

Does not this describe Bernanke, and Greenspan before him? Any and all Central Bankers?  Is there any part of YOUR economic freedom they do not control? Does not your economic freedom relate to  - even dictate -your real  "individual" freedom?

 A "monetary shaman" can only exist  when there is "faith"  - a "buy in"  - to their  "religion".

The "religion"  is a private banking cartel - THE FED - that exists only because it feeds on  debt - and the creation of debt - commonly (and ignorantly) called "money" - but which is really nothing more than an IOU - passed to our progeny.

But that's not quite right, is it ? It's actually a YOM -  "you owe me" - goods and services that I can not afford myself - but that I can vote to pass on to you. You do not have a vote, because you have not been yet born.  Saweet.






Aug 31, 2013 5:54AM
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Maybe it's time to bring the Fed under congress or someone's control other than a handful of people that make up it's members. The men controlling our economy were never elected and don't answer to any President, Congress or anyone actually elected to any office. That's a bit scary. At some point we need to end QE even if that means the economy takes a short term hit. After all numbers obtained through artificial stimulus are really smoke and mirrors. At some point we have to pay a price.
Aug 31, 2013 9:29AM
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85 billion in useless currency a month is being printed..does anyone  smell runaway inflation in the future?Buy GOLD and SILVER to cover your behinds.
Aug 30, 2013 10:09PM
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Good piece as usual Bill.

The economy is slowing again and next year the Obamacare law will be a huge tax for the working folks thus the destruction of the little discretionary spending that is left for the majority and basically will kill the economy much dependent of said consumer.
No amount of QE (every new QE Gets bigger and stimulates less and less) will alleviate the impoverishment of the masses at the hands of the bankers and the inept gubment.

Anybody that has lived one month month in a third world country understands this.

As for the market's direction? I trade it both ways so i really don't care where it goes.





Aug 31, 2013 12:47AM
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Best stock to buy

Who ever manufactures print shop ink for bernanke

Aug 31, 2013 12:05AM
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Maybe the gov't should issue credits to "we the people" instead of allowing the Fed to produce money out of thin air.  The banks are taking the interest free money holding onto to it.  The money is making the bankers richer and richer while we get squeezed.

By issuing credits to lower mortgages, student loans or medical bills to the American people, money will free up and create velocity in the market.

If the typical American has difficulty paying just for food, how can they purchase goods?  Like it or not we're a consumer society that needs to get on it's feet before it's too late.
Sep 3, 2013 8:33AM
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Very obvious to me the FED itself is beginning to understand their own predicament. History will not be kind for America when we have time to reflect on this period.  Using citizen money to boost and maintain stock values for the investment class is about as sick a function as one could come up with.  The poor without question are slipping into the abyss while politicans; including Bernanke who in my opinion has morphed into one, continue slipping goodies belonging to the citizens out the back door with seemingly no complaints from the uninformed masses. How this has become accepted points out the arrogance and pandering common with a declining culture.  Rome ring a bell?  JMHO
Aug 31, 2013 7:36AM
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I don’t know about housing in the rest of the country but in Phoenix he’s dead on.  2 months ago there were 15200 residential listings.  There are 18300 now and pendings have slipped by about the same percentage. 


What is interesting is that sales of multi-family property, especially the duplex, triplex and 4 plex buildings, are staying firm.  The prices aren't going up like they were but are still creeping higher.  The number of these properties in foreclosure has dropped dramatically and as of last week there is still a lot of bidding going on.  I don’t have a good explanation for this niche market acting like this – I wish I did.


I wonder how bad it'll get if rates jump another couple points???

 

Todd

Aug 30, 2013 8:14PM
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Don't worry if Syria starts to affect the markets, comic heroes Super-Bernanke-man and Old Bat-woman Yellen will simply print up enough e-cash to buy Syria outright, and then deed it to B of A and some hedge funds. Of course they'll hold it for a later sale at a huge profit.

Aug 31, 2013 8:56PM
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I'm not sure who Mark Hanson is, but anyone associated with credit portfolios knows that going in with yields close-to or under the prevailing cost to service the contracts is a dicey affair. In a perfect world where everyone pays on time, the model would extend out and steadily ramp down until under water and in loss territory. That's in a perfect world. You can judge by the homes that sell, then repo and sell again that we are far from a perfect world. Further, Mark may have access to the UBPR, or Universal Bank Profitability Report but we no longer are. In 2008, the UBPR of every major bank demonstrated critical cost flaws relative to credit. It's got to be worse not better by now because low rates, high loss and a waning pool of creditworthy borrowers control all the factors. Kudos to Mr. Hanson and to Bill for mentioning his accurate picks. I don't need to analyze much to predict broad failure bearing down on global everything... why else would we invent a war premise? Consider that destitute people struggling with long-term adverse conditions, don't suddenly rally behind a clueless government still living La Vida Loco. The pendulum, falsely anchored in favor of psychopaths... has torn loose and swings not just as a free blade again but now dragging with it that which trapped it. Such trespass will draw in extra variables even our best cannot speculate on. I could care less now WHEN the catastrophe occurs, but how long after it will we wait to stand back up. If ever.
Aug 31, 2013 10:31AM
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I'm going to hold out and say it won't come tumbling down till after we have a new Fed chief in January
Aug 31, 2013 8:17AM
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As the IDIOTS pound on WAR drums. Speculators cash in. That's the new way to profit in the modern markets. 
Sep 1, 2013 10:20AM
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Everyone seems to forget, the Fed is for all practical purposes a bank cartel independent of the government.  It's purpose is to protect the members and interest of the cartel, NOT the citizens of the good old USA.  The Feds policies by design create boom/bust cycles, and who gets fleeced when there is a bust and a need for another bailout?  The citizens of the good old USA always end up picking up the tab.  Only this time the citizens of the good old USA are tapped out. We have more debt than we we ever be able to repay as individuals, cities, counties and as a country.  As this debt is defaulted on banks will be punished for the sins of the Fed.  That's why it's so important the Fed keeps this bubble airborne, to protect the banking cartel.

In 2 years we will be Cyprus.  Cypriots learned a great lesson: keep some cash on hand, you may need it when the next bubble bursts.

The world would be a better place without the Fed.  
Aug 31, 2013 8:34PM
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           The "Need to bring the Fed under the control of Congress"  BAD ADVICE

On December 23rd , 1913 the Federal Reserve System, was created by and "Act of Congress"  The System consists of a seven member Board of Governors with headquarters in Washington, D.C.and twelve Reserve Banks located in primary cities throughout the U.S.

 

The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve a 14-year terms of office.

 

These men and woman have no interest in politics and have chosen to spend a life time of schooling and training in the banking institutions, they have more time spent in collages and universities then the lawyers who make up our Congress and Senate.

 

To appoint the Senate or the House to oversee the Central Banking System would be like "Having the Fox Rule the Henhouse".

 

The Responsibilities of the Board is the formulation of monetary policy, while the Senate and the House responsibilities are to create as much "Pork" as they can in any given bill.

 

For EXAMPLE: Watch and see the reaction of the House and Senate in the raising of the DEBT CEILING and you will see why we should never give such a system like the "Central Bank" over to GOVERNMENT

 

 

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ABOUT BILL FLECKENSTEIN

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This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.

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