Joe's Investo-Blog

The Fed is Prepared to Launch Most Radical Intervention in History

By Mike Whitney

www.globalresearch.ca/index.php?context=va&aid=20801

August 28, 2010

The equities markets are in disarray while the bond markets continue to surge. The avalanche of bad news has started to take its toll on investor sentiment. Barry Ritholtz’s “The Big Picture” reports that the bears have taken the high-ground and bullishness has dropped to its lowest level since March ‘09 when the market did a quick about-face and began a year-long rally. Could it happen again? No one knows, but the mood has definitely darkened along with the data. There’s no talk of green shoots any more, and even the deficit hawks have gone into hibernation. It feels like the calm before the storm, which is why all eyes were on Jackson Hole this morning where Fed chairman Ben Bernanke delivered his verdict on the state of the economy on Friday.

Wall Street was hoping the Fed would “go big” and promise another hefty dose of quantitative easing to push down long-term interest rates and jolt consumers out of their lethargy. But Bernanke provided few details choosing instead this vague commitment:

“The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

Check. There’s no doubt that Helicopter Ben would be in mid-flight right now tossing bundles of $100 bills into the jet-stream like confetti if he had the option. But Bernanke is Read more…

Bonds, Currencies, Economics, Financial Crises, Inflation/Deflation Banks, congress, Currencies, debt, deflation, economy, fiscal policy, inflation, liquidity trap, monetary policy, quantitative easing, strategy, The Fed, US treasury

To My Clients:

Our accounts are up 5.3 % for the Quarter and up 11.2 % for the year 2010 to date.

Even though the broad stock market indexes are all down over 10 % this past quarter, we have been fortunate once again to show positive returns in our accounts with a targeted and conservative approach. Our tech stock, Sandisk, was up over 20%, our gold stocks were up 12% and our long-term treasury bonds were up 10%. The largest portions of our accounts remain invested in cash and short-term treasury securities. Short-term interest rates will remain at historic lows and we expect long-term interest rates to continue to decline even as federal debt surges.

The alleged “recovery” recently has been showing signs of weakness and debt problems continue across the globe leading to volatility and weakness in the stock markets. There is considerable discussion among economists and analysts as to whether we will enter into a double dip recession. We don’t necessarily agree and tend to follow a recent new term to describe the current outlook for the economy which is “muddle through”. Read more…

Asset Allocation, Banks, Bonds, Economics, Gold, Inflation/Deflation, Markets, Portfolio Management Asset Allocation, Bonds, debt, Economics, economy, fiscal policy, liquidity trap, monetary policy, Portfolio Management, stock market, stock picks, Stocks, strategy, The Fed

by James Galbraith
May 12, 2010

source: http://voices.washingtonpost.com/ezra-klein/2010/05/galbraith_the_danger_posed_by.html

James Galbraith is an economist and the Lloyd M. Bentsen Jr. chair in government and business relations at the University of Texas at Austin. He’s also a skeptic of the prevailing concern over America’s long-term deficit. With many people now comparing America’s fiscal condition to Greece, I spoke with Galbraith to get the other side of the argument. An edited transcript of our conversation follows.

EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

JG: No, I think the danger is zero. It’s not overstated. It’s completely misstated.

EK: Why?

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

So there are two possibilities here. One is the theory is wrong. The other is that the market isn’t rational. And if the market isn’t rational, there’s no point in designing policy to accommodate the markets because you can’t accommodate an irrational entity.
Read more…

Banks, Bonds, Currencies, Economics, Inflation/Deflation Banks, Bonds, congress, Currencies, debt, deflation, Economics, EU, exchange rates, fiscal policy, IMF, inflation, monetary policy, Politics, The Administration, US treasury

The E.U.’s Dangerous Game

By MARK WEISBROT
Published: May 12, 2010

The agreement by the European Union and the International Monetary Fund to provide up to $960 billion of support to the Continent’s weaker economies, as well as to financial markets, has appeared to calm investors worldwide, for the moment.

But this does not resolve the underlying problem, even in the short run.

The problem is one of irrational economic policy. The Greek government has reached an agreement with the E.U. authorities (which include the European Commission and the European Central Bank), and the I.M.F. that will make the current economic problems even worse.

This is known to economists, including the ones at the E.U. and I.M.F. who negotiated the agreement. The projections show that if their program “works,” Greece’s debt will rise from 115 percent of gross domestic product today to 149 percent in 2013. This means that in less than three years, and most likely sooner, Greece will be facing the same crisis that it faces today.
Read more…

Asset Allocation, Bonds, Currencies, Economics, Inflation/Deflation, Politics Bonds, collapse, Currencies, debt, Economics, economy, EU, exchange rates, fiscal policy, IMF, monetary policy, Politics

http://www.bloomberg.com/apps/news?pid=20601103&sid=aqpASviGyLQc

April 26 (Bloomberg) — The bond vigilantes who punished governments for profligate spending in past years have gone into hiding.

Sovereign bonds yield an average 2.385 percent, about the same as a year ago and below the average of 3.08 percent in 2008 when the credit market seizure led investors to seek the safety of government debt, according to Bank of America Merrill Lynch index data. The cost to borrow is steady even though the amount of bonds in the index that includes nations from the U.S. to Germany and Japan has grown to $17.4 trillion from $13.4 trillion two years ago.

While the debt helped the global economy recover from its first recession since World War II, yields show bond investors aren’t troubled that the growth will spur inflation. Consumer prices excluding food and energy costs rose 1.5 percent in February from a year earlier in the 30 countries that form the Organization for Economic Cooperation and Development, the smallest gain on record.

“The fact that inflation is very well behaved, that provides the cover for central banks to remain on the sidelines and continue to pursue accommodative policies to help the economy,” said Thomas Girard, a senior money manager who helps oversee $115 billion in fixed-income assets with New York Life Investment Management in New York.
Read more…

Asset Allocation, Bonds, Economics, Inflation/Deflation, Markets Asset Allocation, Bonds, collapse, debt, deflation, Economics, economy, fiscal policy, inflation, monetary policy, Politics, Regulators, strategy, The Fed, US treasury

What the Peoples Bank of China Can and Cannot do with its Foreign Currency Reserves

http://mpettis.com/2010/02/what-the-pboc-cannot-do-with-its-reserves/

February 22nd, 2010 by Michael Pettis

China did not reduce its dollar holdings
Beijing is not Washington’s banker
Can PBoC reserves protect China?
Balance sheet mismatches
Are there no winners and losers?
Wealth is transferred within China

It is a real toss-up as to which generates more bizarre comment in the international press: Beijing’s long-feared dumping of US Treasuries, or the use and value of the PBoC’s central bank reserves. The revelation last week that Chinese holdings of US Treasury obligations fell in December by $34.2 billion, to $755.4 billion, generated a frisson of fear and excitement, leading one prominent newspaper to worry that “If there is one thing that gets investors twitchy, it is the fear that China is losing its appetite for US government bonds.”

And shouldn’t they get twitchy? After all this reduction in Chinese holdings of Treasury bonds comes from the USG’s TIC data, so it must be true that China is dumping dollars, right?

No need to twitch, it means no such thing. Read more…

Banks, Bonds, Currencies, Economics, Financial Crises Banks, Bonds, collapse, Currencies, debt, Economics, exchange rates, fiscal policy, inflation, monetary policy, The Administration, The Fed, trade

To My Clients:

Our accounts are up 24.1 % for the year 2009.

Our accounts, together with the stock and bond markets, have performed quite well this past year despite large holdings in each account of low yielding T-bills and Treasury bonds. It is still quite difficult to find reasons not to continue our successful defensive strategies of the past three years in which we’ve been quite fortunate to obtain positive returns in each year.

The credit crisis is far from over, and although there are indications that the recession is coming to an end, it also appears that it will be a far from robust recovery. The best that can be said of the economy is that it has stopped declining. Employment continues to lag and will continue to be a severe drag on any recovery. In spite of the Federal Reserve’s efforts to stimulate monetary growth, it is not happening, as banks remain fearful of lending and continue to leave their reserves on deposit at the Fed. What little stimulus we are seeing seems to be finding its way into the financial markets so far, with little to show in the real economy.

The dollar has been declining for most of this past year with only recent signs of a turnaround. This has contributed to our Read more…

Asset Allocation, Banks, Bonds, Currencies, Economics, Financial Crises, Gold, Inflation/Deflation, Markets, Portfolio Management Asset Allocation, Banks, Bonds, Currencies, debt, deflation, economy, exchange rates, Gold, inflation, monetary policy, performance, Portfolio Management, stock market, strategy, The Fed, trade

To My Clients:

Our accounts are up 20.41 % Year-To-Date.
The Dow Jones Average is up 10.66 % Year-To-Date.

Although the stock and bond markets have been quite buoyant over the last several months, it is still quite premature to declare the longest postwar recession, over. There are still considerable risks to the economy. The massive fiscal stimulus together with the central bank’s printing of money is beginning to unnerve central banks around the world that hold huge portfolios of dollars. Consequently, the dollar, which is the world’s reserve currency for trading commodities such as oil, is in decline. This means that it will become more difficult for the government to borrow massive amounts of money from foreign sources, and imports, such as oil, will rise in price. Interest rates will also rise as necessary to attract the needed capital. Likewise, gold has been rising in price and is reaching all time highs. Read more…

Asset Allocation, Bonds, Currencies, Economics, Financial Crises, Gold, Inflation/Deflation, Markets, Stocks Asset Allocation, Banks, Bonds, Currencies, debt, economy, exchange rates, fiscal policy, Gold, inflation, monetary policy, performance, stock market, stock picks, strategy, The Fed

To My Clients:

Our accounts were up 1.01% during the first quarter of this year.  The major stock market indexes are all down between 3-13%.

The current recession, the longest and deepest in decades is the result of massive debt defaults and deleveraging. Banks are now undercapitalized and are preserving capital by tightening lending standards (if they lend at all) resulting in a vicious cycle of a shrinking economy making money become even more scarce. Read more…

Asset Allocation, Banks, Bonds, Economics, Financial Crises, Gold, Markets, Portfolio Management Banks, Bonds, collapse, debt, economy, fiscal policy, Gold, monetary policy, performance, Portfolio Management, stock market, strategy, The Fed

Yep. There’s yet another cardinal rule that tells you when to get into the market and when to get out (more or less). It has never failed me and following it, helped me avoid entirely the catastrophic markets last year and turn in positive performance for 2008.  You’ve all heard it before but let’s review because it does work. Read more…

Bonds, Economics, Gold, Markets, Portfolio Management, Stocks Bonds, Economics, economy, fiscal policy, Gold, monetary policy, performance, Portfolio Management, stock market, Stocks, strategy, The Fed