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The Emperor Has No Clothes: Markets Abandon the Fed

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It would seem that the emperor has no clothes. In the last few weeks, markets have begun to act as though they no longer think the Fed’s strategy is credible. Same goes with the world’s other interventionist central banks. [expand title="Click here to read more."] The sole purpose of global central bank monetary policy in the last five years has been to keep rates low. The theory goes that low rates will encourage borrowing, which will encourage spending and that, in turn will strengthen the economy. The big problem? It hasn’t worked yet, and it appears that market participants may be … [Read more...]

The Fed Sends Mixed Signals

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Caroline Baum at Bloomberg explains the Fed's fuzzy messaging on the future of QE. [expand title="Click here to read more."] First Baum lays waste the idea that the Fed can use predictive models as the basis for sound monetary policy. At his March 20 press conference, Fed chief Ben Bernanke said “it makes more sense to have our policy variable,” with purchases that respond to changes in the outlook. To him, perhaps. If I understand Bernanke, he is saying that every six weeks policy makers will examine an array of leading, coincident and lagging indicators, most of which are revised … [Read more...]

Beware Air Pockets!

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If you’re going to chase bubbles, you had better watch out for air pockets! By May 22nd the Nikkei 225 was up more than 50% for 2013. Speculators and gamblers who believed in the hype have received an unfortunate reality check in the days since. In only ten days, the Nikkei is down a punishing 17%. [expand title="Click here to read more."] You can see on the chart below that volume (the bar chart) of trading in the WisdomTree Japan Hedged Equity Fund (the vehicle of choice for speculators) really began to pick up in April. Today, only two short months later most of the folk who … [Read more...]

Billionaire Bond King Bill Gross Slams Ben Bernanke

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Bill Gross is out with a scathing new Investment Outlook on Dr. Bernanke’s misguided monetary activism. [expand title="Click here to read more."] Below are the highlights. You can read the letter in its entirety here. Central banks – including today’s superquant, Kuroda, leading the Bank of Japan – seem to believe that higher and higher asset prices produced necessarily by more and more QE check writing will inevitably stimulate real economic growth via the spillover wealth effect into consumption and real investment. That theory requires challenge if only because it doesn’t seem to be … [Read more...]

Retired Teachers Pay High Fees to Lag the Market

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I’d get teacher pensions out of hedge-funds altogether. Retired teachers would be aghast if they truly understood how their money is being “invested”. [expand title="Click here to read more."] Amid questions and criticisms regarding the State of Rhode Island's hedge-fund investments, Rhode Island General Treasurer Gina M. Raimondo has released a breakdown of fees. In documents released to The Providence Journal and a table posted on the treasurer's website, Raimondo reports that the state paid $15.9 million in fees last year on Rhode Island's $1 billion hedge-fund portfolio. That … [Read more...]

Volcker Delivers Punishing Blow to Bernanke Fed

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In a speech this week to the Economic Club of New York former Federal Reserve Chairman Paul Volcker delivered a punishing blow to the misguided monetary activism of the Bernanke Fed. This is the best speech on economic policy you will read this year. [expand title="Click here to read more."] Volcker has under his belt the wisdom of over 60 years of experience in monetary policy. In addition he brings loads of common sense and humility to the table—two ingredients in short supply at the Bernanke Fed. Volcker can see the shortcomings of the misguided approach that Dr. Bernanke and is erudite … [Read more...]

This Can’t Be Healthy: Monetary Base Increases Over 260% in less than 5 Years!

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The newest monetary base estimate was released by the Fed today. Many investors and analysts have become desensitized to ever increasing amounts of money in the economy, perhaps it’s time to take a step back and look at just how bad it’s gotten. [expand title="Click here to read more."] The Fed reported that today’s monetary base is roughly $3.2 trillion. That’s up more than 260% since November 2008. At that point, the monetary base had never breached $1 trillion, and was still only $0.875 trillion. As you can see on the chart below, monetary base expansion has happened slow and … [Read more...]

Apple, Corporate Taxes and Congress

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Senator Carl Levin, Chairman of the Senate Permanent Subcommittee on Investigations, invited Apple CEO Tim Cook up to Capitol Hill to testify on what the senator called Apple’s “Holy Grail of tax avoidance.” So what is Apple guilty of that required special testimony before a Senate subcommittee? Apparently the company used perfectly legal means to avoid paying the United States’ corporate tax rate—the highest among OECD members. [expand title="Click here to read more."] Rather than wasting taxpayer dollars on fishing expeditions targeting one of America’s most successful companies, … [Read more...]

Is this Rally all about the Fed?

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The relentless rise in the U.S. stock market over recent months has emboldened the perma-bulls. The business news cable networks are parading out this crowd in all of their glory to gloat over the market’s rise.[expand title="Click here to read more."]Never mind that many of these pundits are the very same cheerleaders who led investors astray right before the last two stock market collapses. True to their colors, the perma-bulls are as exuberant as ever—yes even after a 140%+ rise off the 2009 low. Before the last crash we were hearing some of the same hollow arguments that we hear today. … [Read more...]

Will Summer Spell the End of the Bull Market?

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As U.S stock prices continue their liquidity-fueled ascent, the rationalizations for remaining bullish on the U.S. stock market become more perverse by the day. Barron's is calling this the TINA market, as in There Is No Alternative to U.S. stocks. [expand title="Click here to read more."] How comforting. The best justification for putting your life savings into the stock market is, "Might as well, ain't nothing better." The peddlers pushing product for Wall Street's biggest banks are using a similar line of reasoning, telling their clients to load up on U.S. stocks because the American … [Read more...]