The Fed's head is still in the sand

The Fed's most-recent meeting offered no hint of stimulus and no sign anyone recognizes the economy is slowing again. Also: The Apple gets bruised.

By Bill_Fleckenstein Apr 27, 2012 3:01PM

Ostrich burying head in the sand, Tsavo East National Park, Kenya, Africa © altrendo travel/Getty ImagesAfter a rough spell recently that saw it almost 14% off its recent high, Apple (AAPL) enjoyed a moment in the sun this week, bouncing 8% Wednesday as it once again announced earnings that made it a huge winner at Wall Street's favorite game: beat-the-number.

 

With that out of the way, we can turn our attention to whether its stock price can make a new high, or if this rally turns out to be of the failed variety.

 

Again, I have no position in Apple, but since it is leading the Nasdaq ($COMPX) around by the nose, I believe it merits our continued attention. For more of my thoughts on Apple, take a look at "Is it time to bet against Apple?"

 

Looking for work

 

Somewhat more germane was this week's Federal Open Market Committee meeting, as well as Chairman Ben Bernanke's news conference afterward.

 

I was especially curious to see to what extent, if any, the committee members would recognize the signs of economic weakness that I see percolating beneath the surface. In particular, given the Federal Reserve's current focus, initial jobless claims -- which have been creeping higher after bottoming out at around 350,000 in February -- and, as of April 26, were not all that far from the supposedly important level of 400,000 (at 388,000).

 

(Column continues below video.)

(I say "supposedly" because I don't think any specific number means that much. In fact, initial claims, as well as jobs data, probably get more scrutiny than they deserve, but that is the environment we are dealing with.)

 

Given that we are basically three years past the low in the economy, you would think those claims figures would be declining regularly, even if the recovery wasn't all that potent. Unfortunately, that isn't the case.

 

The reason I bring this up is because, as we know, the Fed is now quite focused on jobs and the lack thereof. Thus, as we approached this week's FOMC meeting, my expectation was that the Fed would give itself enough to room to maneuver (i.e., it would hint at a third round of economic stimulus via quantitative easing) in the event that jobs data were not as "accommodative" as Fed monetary policy.

 

Fed tries on its poker face

 

As it turned out, the committee's communiqué was pretty much as the masses had expected. The net of it was not a tilt toward easing, as I had suspected.

 

In hindsight, I realize that I had given the Fed too much credit to be able to take the pulse of the economy. Considering the track record, that is not too surprising, as the Fed is often wrong in its assessment of what the economy is liable to do. So I suppose it's par for the course that it doesn't realize that the economy is weaker. (Just like no one at the Fed saw either the stock or housing bubbles, etc.)

 

Thus, it will react to the weaker data at some point and have to deal with that implied U-turn when it happens.

 

Dutch bonds 'in Dutch'

 

Checking in on Europe, the latest wrinkle in that continent's political Rubik's Cube was the Dutch Cabinet submitting an offer to resign to Queen Beatrix due to a disagreement regarding its proposed austerity package.

 

The reason this is worth pointing that out is because the Dutch are considered to be one of the more prudent financial entities in Europe, and one of the few countries left with a triple-A debt rating. If they can't (or won't) pursue the austere policies that Germany wants, how will Spain, Italy or even France manage to do so? Expect more activism on the part of the European Central Bank.

 

The beneficiaries of worldwide money printing, however, continue to be punished. In fact, the mood in the metals market is currently so wounded that, while stock bulls seem to have no fear, participants in the metals have nothing but fear.

 

As gold and silver continue to test people's convictions, and the worse psychology gets, the bigger the rally will be once folks finally get it in their heads that QE3 is coming, or they wake up to the already problematic rate of inflation.

 

On the air

 

I participated in an impromptu interview with Eric King on Wednesday, just after Bernanke's news conference. He wanted me to weigh in on the Fed, and I agreed, since I was pretty disgusted with all the hoopla. And, apparently, it showed. Interested readers can find it here.

 

At the time of publication, Bill Fleckenstein owned gold and silver, as well as gold and silver mining stocks.

 

You'll can find Bill Fleckenstein's latest columns on this page.You can still find his older columns here.

Tags: AAPL
45Comments
Apr 27, 2012 7:28PM
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austerity, high debt, printed money, inflation, low wages and high unemployment don't create economic growth. Companies are make better then expected profits - cheep labor, very low interest costs, inflation, no R&D, no expansion costs. It is going to take a complete new economic thinking to get out of this mess.
Apr 28, 2012 1:47AM
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The whole system is collapsing. The plan will be to cut SS, Medicare, and welfare and take that money and give it to the Banksters. This will happen no matter who wins the Nov. elections (Republicans or Democrats). Austerity measures will be imposed on the USA and Europe by early next year at the latest. Politicians in both parties have thrown the middle class and the USA under the bus and should be thrown out of office. This is the only way things will have a chance of improving.
Apr 27, 2012 10:26PM
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High inflation, lower stadard of living....thank you not, all of are representatives. We know the central bank...ie our fed bank...so they can pay back what they owe with lower dollar value.

 

Our govt. has put the AMERICAN People under the Bus, they have committed treason against our country...yet these elitist, yale, harvard, standford grads,,,think they know best...now they have no answer to our problems....they just keep kicking the can down the road...well I hope they have homes and friends in other countries ......it will get ugly....and I personally will hold them and seven generations of their offsprings responsible......says God.....

We the People of the United States of America will pick up the trash they left us and rebuild.

Apr 27, 2012 9:27PM
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QE3 will get gas to$ 5.00 a gallon and that would create jobs? There will never be good paying jobs for most people ever. There are to many robots doing the work people should

be doing. The human race has outsmarted itself.

Apr 29, 2012 10:10PM
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real easy, cut every government agencies  and programs by 50% and then start over, also stop the overinflated government travel like mrs. obumers spain trip,gsa vegas trip,

unemployment insurance for 99 weeks come on, im in the seafood industry and people have been coming in now for quite awhile to apply but they do not want the job as they say they just apply to satisfy job search regs to keep there unemployment

as for free market hell yes, but the partys over if we keep spending the way the politicians' are

it is not about dems and repubs its about a culture of spending money we do not have and it must be stopped, my vote will go to someone new because what we now have is the worst ever and 4 more years equals bankrupt

Apr 30, 2012 7:29AM
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Stocks are going to tank, sooner or later.  This is reality.  obama and the dems do not accept reality that this out of control spending will bankrupt us and cause another recession.  We are now paying over $400 billion in interest alone on the debt at around 3% interest.  What happens when interest rates go up to 5 - 6%.  Our interest skyrockets.  Our debt is now larger than our GDP.  The treasury keeps printing money.  This is part of the reason that oil is so high, it is based on the dollar, which is low.  Sooner or later, interest rates will go up, do to the printing of money.  The dems need to get away from their scare tactics and work with the Republicans to get spending under control.   Americans need to realize this and pressure the dems to work with Republicans.  The other problem is that the agreement that Merkel from Germany crafted and was signed by the European nations, is falling apart.  Spain will not meet the cuts agreed upon.  Sarkozy may not get reelected due to the austerity cuts.  The new PM will back out of the agreement, along with other nations.  Whether we like it or not, the US is headed to another recession.  Part of Europe is already in a recession.  The UK has admitted it is in a recession, with other nations not far behind.
Apr 30, 2012 7:39AM
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The Fed knows exactly what they are doing to the 99% of us...there head is not in the sand it's up their "YOU KNOW WHAT"!

 

It's all politics, and shame on the Fed for playing us as pawns in this game!

Apr 28, 2012 5:52PM
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Who the hell says that the Fed is obligated to do anything when the economy is weaker than at some other time. The Fed doesn't own the country--enterprise does and when enterprise, of the free market type, is weak, it would be far better to look for the reasons the weakness is occurring and stop trying to throw phony money(?) at the problem.

 

 Did anyone out there ever consider that this fabulous, free market, self adjusting marketplace can heal its own problems without the Fed or government intervening. Read history around the 1920s when the administration was asked to intervene in a severe downturn but chose to do NOTHING. That led to what is now called the ROARING TWENTIES, a time when government and the Fed did NOTHING and America prospered. 

 

To those entities I say--leave us alone, get out of our way and destroy yourselves before you destroy this country.

Apr 28, 2012 5:25PM
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We're in a hole and they're selling us shovels.
Apr 30, 2012 7:33AM
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Response to some postings.  Taxing is not our problem.  It is the overspending of money that we do not have.  When will people get a grip on this?  Every single time that the Republicans want to address this, the democrats bring granny out and scare the people.  The problem is that the democrats have no plan, whatsoever.  Other than raise taxes.  If you take money from the job creators, they do not hire.  Pretty darn simple that liberals do not understand.  SSI will be bankrupt 3 years sooner, since the dems want to keep pushing granny off the cliff.
Apr 27, 2012 7:20PM
Apr 28, 2012 10:39AM
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Hey FreedomTex are you stupid or you must thing that Bush is still President. When a new President takes office it's now his responsibility. Obama said he had a plan to fix the economy. The fix hasn't worked. Again Bush is not President anymore so stop blaming someone who is not President. A person who keeps on blaming someone else is a person who is not quaified either to be a manager supervisor or President. I'll bet you blame everyone for your own short coming because nothing is your fault it's everyone's eles' fault.
Apr 27, 2012 7:36PM
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Smile Who cares, living within or below a person means has its own rewards. If the best things in life are free, then the second best things in life are inexpensive or  cheap. It's too stressful to spend big money even if they have it. Nerd Let's be happy with what we got.
Apr 28, 2012 10:58AM
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Make no mistake our system rewards winners.  The corrupt, the unscrupulous, liars, thieves, greedy, manipulators all get the rewards of a winner.  The laws, government, government officials, government agencies, marshals, judges, attorney generals, all of them are on the system take.  Laws passed, court decrees, business dealings, takeovers, mergers,  price fixing.  All of it.  It is the system.  Only when one of them messes up, then he is osterized by the corrupt system fully as a n example of what is not tolerated.  The rest is fully exonerated.  Long live the corrupt system of greed rewarded by more greed, to the highest level of respect ability.

Apr 28, 2012 8:55AM
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Bernanke has made it clear in the past that he can only do so much. It's up to Washington to fix the job situation, if that's even possible at this point.
Apr 28, 2012 12:56PM
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REGULATE the oil and gas and the hedgefunds , speculators and astronomical profits of the oil companies will come to an end.

Write your Congressmen and women and your Senators and the President and the Vice-President till they regulate the oil and gas. It will be so the American people can survive and the food products will follow suite as they have while the oil companies and speculators have run the price up to astrononmical levels(and uncalled for).

see how long they leave this up before changing the blog to get it off.

 

Apr 28, 2012 1:44AM
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the fed and the obama administration have no clue on the ever presence tsunimi wave encroaching on its survival. there's no fix on housing problem because the banks are running scare to loan; the printing currency press continiue spitting worthless green slime. China surpasses it reminbe (yuan) value as major world player. US$ will be like the Argentina 1970 inflation scenario dollars by the wheelbarrel. That's why my money is still RMB/HK$ account. Better look again where your hard earned investment should be. buy or invest in gold and silver, especially swiss 20 franc gold where uncle sam can not confiscate.  
Apr 28, 2012 5:23PM
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Why not pass a bill that requires everyone to pay cash money on the deficit?

We can already do that - it's called taxation, but that's a 4 letter word....times 2.

Apr 30, 2012 8:37AM
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Correct USA. It's also called job preservation. Romney has already promised to replace Helicopter Ben if he wins, so the only way for him to stay in the job he loves is for Obama to win. Which means its not an if, but a when, he decides to turn on the QE3 spickett again to raise the stock market.

 

In doing so while boosting the market it will also raise commodities, food and gas go up, and will test the economy as a whole. Guessing oil will go north of $120/barrell. This sugar high from 7 Trillion being printed from around the world only puts off debt problems. I have a bad feeling the end of this year and/or 2013 we will end up paying the piper with another global downturn.

Apr 30, 2012 12:10PM
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Is it also possible the Fed has recognized that QE2 had no positive outcome, that it only caused speculative inflation in commodities and staples, so that they are hesitant about embarking on another round of QE? I doubt it, but we can only hope. (But of course hope is NOT an investment stategy!)
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ABOUT BILL FLECKENSTEIN

Image: Bill Fleckenstein, MSN money

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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