Fed adheres to 'jawbone' standard
When it comes to monetary policy, our Federal Reserve is hoping words speak just as loud as actions.
It's time once again to check in on our fearless leaders at the Federal Reserve, as Wednesday was the scene of Chairman Ben Bernanke's most recent congressional testimony (as well as the release of the latest FOMC minutes).
But we already knew -- regardless of what Bernanke or the minutes said -- what the Fed is going to do, namely what it has always done since former Chairman Alan Greenspan manned the helm. This is not debatable: The central bank is going to print money -- too much money, it as it will turn out, and the central bankers won't understand that -- leading to a collapse in the economy and financial markets, and so the Fed will come back and do the same thing on an even bigger scale.
For five years now, there has been steady talk of exit strategies, yet none has occurred. Nor is exiting described as a binary on-off switch any longer, but rather as a dial whereby the flow of money can be scaled up or down, depending on the data.
Thus, the very concept of an exit strategy, where the Fed might suddenly stop buying or actually sell bonds and reduce its balance sheet, has been abandoned and is never going to happen.
This makes it rather annoying and maddening to deal with financial markets that move on every speech given by every Fed head as they work their jawbone standard. But that is where we are.
Fed won't hit the brakes until it's sure we've hit something
No one should be shocked to learn that Bernanke opened Wednesday's testimony by saying that a premature tightening risks slowing or ending the recovery.
That is all you need to know: There will be no premature tightening. Bernanke is not going to pre-empt anything, certainly not inflation.
In fact, he said, ". . . inflation, if anything, is a little too low."
All of the tough talk, I believe, is because the powers that be at the Fed have some inkling somewhere in the back of their minds that maybe if they "overdo it," financial markets might get a little (in Fed terminology) overheated.
Other than that, they have no interest in ending their massively stimulative policies in any time frame that could remotely be called early.
In any case, when the Bernanke headline hit the tape, everything vaulted to the upside. Then, during the question-and-answer period with lawmakers, Bernanke said he could raise or lower the purchase pace of Fed bond buying (gee, what a shock), depending on the data (ditto).
But then he dropped a supposed bombshell, noting that the Fed could cut the pace of bond purchases at one of its next few meetings (yes, slowly, or maybe not at all). That comment caused a great deal of selling in the bond, currency and metals markets, but it initially had only a modest impact on the stock market, which eventually sank with everything else.
Hanging ourselves on every word
The bottom line is that this is a whole lot of hot air, but we are forced to deal with it on a daily basis because we live in a world where central bankers think they know the future and the only standard that exists anymore is the jawbone standard.
(And, most importantly, the damage from money printing has already been done, the consequences just haven't yet fully manifested themselves.)
Are bonds u-ZIRP-ing control?
Bonds were deservedly smoked on Wednesday, and yields are approaching their highs of the year. If they keep sliding, stocks will get hit (though they could tank for any reason now, given how frothy the market is) and then the economic data will be seen for what it is: weak.
Of course, "taper talk" would then cease and folks would realize that the Fed is (and has been) trapped. You can't abandon zero-interest-rate-policy (aka ZIRP) until the market forces you to via a funding crisis. Period!
At the time of publication, Bill Fleckenstein owned gold.
It's hard to be right when fundamental what you say is correct but the Global Feds are behaving fundamentally wrong. You can be a bear and still pick certain stocks. Being a bear doesn't mean you are just sitting on the sidelines. Just about everything Bill has talked about is dead on. However that won't make the markets move up or down. Far too much funny money for that to happen. Funny money that just keeps on growing without end.
Ben Bernanke et al enable the Federal Government to do these things because the Federal Reserve policies create the false illusion of a recovering economy, instead of the reality of just creating bubbles in the stock, bond and housing markets.
If you read that article, you will begin to see why some folks have major concerns about that part of the world.
We all know about the Bank of Japan and their $1.4 Trillion dollar stimulus plan.
We all know about Uncle Ben and his $85 Billion a month in asset buying.
This is all a collective effort to continually feed the Rich while starving the poor. How anyone can think this is a good thing, is beyond reason. Bill has been right for quite some time, too bad he doesn't get nearly the credit he deserves for sounding the Alarm Bells.
"That's why states and communities are suffering financially. Wall Street funds the de-industrialization through [steerage], yes, your investments, looking for those returns- you lose in the long run."
Pardon me for modifying your quote, Derfy. Better to abolish and eliminate all the veils of anonymity and illuminate crooked administrative and financial terrorists. Better to tear down the few losers controlling and manipulating our country, then to push our country into a new civil war. Wealth has to go down. We need jobs, they didn't hire, now they must leave or be eaten.
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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.
[BRIEFING.COM] S&P futures vs fair value: -6.60. Nasdaq futures vs fair value: -12.80. The S&P 500 futures trade nearly seven points below fair value, putting the benchmark index on track for a lower start to the session after losing 0.5% yesterday. The cautious sentiment carried over into the Asian session where the Nikkei lost 2.6% while the dollar/yen pair slid below the 102.80 area. Also of note, copper extended its recent decline, but despite the early weakness, the red metal ... More
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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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