New face, old thinking for the Fed?
When Ben Bernanke hands over command at the Federal Reserve, it likely won't be to someone who'll change policy and solve our problems. Only a revolt in the bond market is likely to force real change.
Now that the election is past, I am looking for the market, the media, and (if we're lucky) even politicians to focus on different -- if not more important -- things.
More likely, however, is that the news will now become dominated by the political posturing, bickering, leaks, brokering of agreements, accusations and brinkmanship surrounding the upcoming automatic tax hikes and spending cuts otherwise -- and inaccurately -- known as the fiscal cliff.
The logrolling should certainly get interesting. But it is nearly impossible to see how the twists and turns in this process will work out, other than to say it will probably result in a last-minute kick of the proverbial can down the road, with most of the tax hikes sticking but few of the recommended spending cuts taking effect.
In other words, thinking about this will be a waste of time for investors until we get closer to the final compromise, as the outcomes will be uninvestible until then.
She has such small shoes to fill
Second, with the election decided, there is no longer any angst that Federal Reserve Chairman Ben Bernanke will be replaced by someone who tends toward tighter monetary policy. And based on stories we've seen, he most likely will not seek another term.
I suspect current Fed board member Janet Yellen (read her Fed bio) or perhaps William Dudley (read his Fed bio), the president of the New York Fed, will be his replacement. Both are potentially even more reckless than Bernanke.
At this juncture I would say the leading candidate would be Yellen, and I bring this up because on Tuesday she gave a speech in which she said that the Fed ought to tie its zero-interest-rate policy to hitting its targets on inflation and full employment, rather than just picking some date. I would not at all be surprised if that is the direction the Fed goes, even before she has the chance to become the first female Fed chief.
Of course, the inflation that is a consequence of unbridled money printing, both here and around the world, has so far been ignored as folks continue to worry about some sort of deflationary accident in Europe, or perhaps even in America.
Meanwhile, inflation is making headlines, as I have noticed in Election Night exit polls as well as recent headlines about the inflation rate in Great Britain, which is running at about 2%, while their 10-year bonds yield not much more than ours, at 1.75%.
It's time to play 'The Price Is Wrong'
I cannot imagine that this situation of inflation outpacing bond yields will go on indefinitely. At some point, bond markets here and around the world will crack under the weight of inflation or stagflation. But there is a psychological component to how either of those problems is perceived, and for the moment it would appear that most folks think inflation is temporary.
Thus, bonds continue to price in a substantial bona fide decline in prices, otherwise known as deflation, which has not happened and will not happen. The only real question is when psychology will change, and that is not knowable in advance.
Nonetheless, I have decided to take advantage of the recent spike in the bond market by getting short a modest amount of 10-year bonds. I will risk a small loss to see if the bond market is actually in the process of having a "failed rally." But I will use a stop order to limit my losses if I'm wrong, because this is all guesswork.
As for the postelection economy, there is one thing I do know: If you liked the last four years, you're going to love the next four.
King World News
My latest interview with Eric King covered a lot of ground, from class warfare, to the fiscal cliff, to real estate, to the prospects for precious metals miners. Interested readers can listen to it here.
China targets bank executives' perks in anti-corruption drive
No more luxury cars and 11 other rules for Chinese banking officials will go into effect in December as China cracks down on corruption. Public fury over executive extravagance is fueling the drive.
Maybe we should do the same here???
Public opinion is stronger in China than it is here in the Land Of the Freeloading Banksters, robber Barons sitting around on their milk arses thieving $85 billion per month...
Your all a bunch of sheeple being herded to the cliff...
There is something that concerns me today. Why hasn’t there been a checklist created for what the banks and the economy need to move forward? Oh, don’t tell me Basil-III has anything to do with the economy.
OK, I get it they don’t have the ability to pay off the loans they created, and it will be some time before they do. But to me they are using the money for the algorithms they created to rip off every penny or 10000th of a penny they get through the numbers game they have created and the government excepts as legal even though it resembles a racketeering type bookie method of making money. It use to be called skimming and it was very illegal. They call it high frequency trading so it doesn’t resemble the old method of taking money without giving it back. The president can create a presidential order to stop high frequency trading but doesn’t and I’d like to know why not.
Do you know that when the banks and governments price out the people for land, we will no longer be able to pay the taxes because they will be too high? There will no longer be any healthcare because there will no longer be any people working in those hospitals and clinics. No amount of troops brought in to quell the anarchy will save lives. When that happens, every government official will lose their job and all you will have is anarchy. Or, will the government mandate that every state and federal official become a soldier to help protect the job they have that helped in creating the money issues we have today? That sounds like another way of being discriminatory. Plus you have to have tax money to pay troops. Our incomes keep going down, not up because of corporation’s inability to sell products that we cannot afford now let alone with all the money printing going on today that will bring higher costs to everything, not just food and gas. We will no longer have any electricity because it will be too expensive. Will you be able to guarantee the money you put away for your children’s college or welfare will be there
when they need it? I don’t know how because even your own class of people will find a way to take that savings from you, just like they did over the last 30 to 40 years.
And why did our inner political circle flood this country with illegal aliens, to sway the vote in their favor. Those who control the game spit on your domain!
BILL, I'M GOING TO LOVE THE NEXT FOUR BECAUSE WHEN THIS GOP-CAUSED BUDGET CRISIS IS AVERTED I LOOK FORWARD TO SHORT-SELLING BEING BANNED. Only then will the little guy be encouraged to enter the stock market again to buy and hold as God intended. That big whooshing sound will be Bill losing money in bonds as the smart money rapidly flows back into equities again. I guarantee you all this: NEVER AGAIN will you see fixed mortgage rates this low again in your lifetime and NEVER AGAIN will you see equities valued this low again in your lifetime. Believe in yourself, be optimistic and invest wisely for the long term because the American Dream is a global reality, especially in China, and everyone wants to have our products. This nation will prosper and global prosperity will once again increase because dreams never die, even if George Bush, Jr. and the Tea Party Republicans were willing to bankrupt us all for their religious beliefs. I still believe in America.
Fleckenstein says there's been no deflation.
He wouldn't know deflation if the price of his house fell in half, which it likely has.
He wouldn't know deflation if the value of the stock market is still lower than it was 5+ years ago.
Has he invented some new defintion? Deflation only counts if it's something you don't care about?
It will no difference who does or says what. It is not difficult to figure out. The 'landscape' was set before the election in the electoral college. There is not one reason to be surprised nor get angry over this and that. There was no recovery and there will not be. This guy in office is a photoshoot and a con man. He has the right audience in doing exactly what he needed to. You have to know what that is.
I do not listen to the nonsense with pundits. Just have a thought that all H may break soon. He will be found out and hope noone is idiotic enough to make him what he is not. Leave him alone and let the dye be cast by those he conned. You allowed it and now live with it.
The ultimate definition of Tyranny is the abuse of a power that no one person or small group of people should even have over others. I can’t think of a better example of that than the money printing and expansion of the monetary base that the Federal Reserve has done in the last four years, and continues to do at an ever faster pace. Janet Yellen and her kind are financial assassins.
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ABOUT BILL FLECKENSTEIN
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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As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.
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