Pages

Wednesday, April 9, 2014

Fed: Print More, Print Longer; For The Granddaughters; For Investors Only; Oil Hitting New Recent High, Trading Just Under $103

Updates

Later, 2:20 pm central time: how interesting. The long note below I wrote well before the "Fed minutes" were released. I have not yet read the minutes, but here is the headline: Wall Street extends gains following Fed minutes. The Dow has an incredible 3-digit gain and oil is up over $103. Reuters is reporting:
U.S. stocks jumped on Wednesday, with the three major indexes hitting session highs, after minutes from the Federal Reserve's latest policy meeting showed a more supportive central bank than previously expected.
The Dow and the Nasdaq rose more than 1 percent with internet and biotech stocks leading the gains. Facebook shares jumped 5.6 percent to $61.45.
Fed policymakers were unanimous in wanting to ditch the thresholds they had been using to telegraph a policy tightening, according to minutes of a meeting last month that shed little new light on what might prompt an eventual interest-rate rise.
"People are taking solace in the idea that the Fed may be more accommodative than previously thought, for longer than previously thought," said Steve Sosnick, equity-risk manager at Timber Hill/Interactive Brokers Group in Greenwich, Connecticut.
"That's giving the lift to stocks."
Thank you, Ms Nasar. Thank you, Mr Keynes. 

Original Post
 
At midday, oil is trading up another 0.40% and is now trading just under $103.

Trading at new highs: CLR, ECA, EPD, ERF.

*********************************

I really learned a lot from Sylvia Nasar's book on economics, Grand Pursuit. I am reminded of that, again, today with the following:

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

How low can "they" go. Look at this, over at Yahoo!Finance:
The Fed has been winding down its massive bond-buying stimulus since early this year, and Kocherlakota said he has no plans to "relitigate" that decision, which puts the Fed on track to ending bond-buying altogether before the end of the year.
Instead, he said on Tuesday, the Fed must do better on returning the economy more rapidly to full employment and a healthy 2-percent pace of inflation.
The Fed has kept its short-term policy rate between zero and a quarter of a percentage point since December 2008, and Kocherlakota told the Greater Rochester Chamber of Commerce that "we should be thinking about" pushing it even lower.
"It's really about demonstrating a commitment to stay with the recovery for as long as it takes to get the economy fully recovered," he said.
There are a lot of folks that talk about the coming bust: the US is in debt $17 trillion and increasing as we speak. There are a lot of folks telling us every day that the market is risky, that it's going to implode, any day now. Maybe. If it does, it will be quite a ride.

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

But for all the gloom and doom, there are also a lot of folks on the other side of the coin.

And then one looks at the market.

It certainly doesn't look like a market that is predominantly "owned" by the gloom and doom crowd. The five year Dow: http://finance.yahoo.com/echarts?s=^DJI+Interactive#symbol=^DJI;range=5y.

The fed has a dual mandate: employment and inflation.

The fed is frustrated with the administration (posted by mainstream media; I don't remember if I linked the story). Everything the Fed is doing to try to increase employment seems to be met with obstacles set up in place by the administration. It's obvious the administration doesn't care about jobs. Doesn't affect me; I don't have a dog in that fight. Moving on.

Inflation. Everything I've been taught about inflation seems to be at odds with what I'm seeing, and what I expect. Sylvia Nasar, in Grand Pursuit, walked me through the history of economics, which really helped. It appears that the great strides made in economics were made about the same time great strides in literature and physics were also being made: at the turn of the century (1900) and during that period leading up to the first world war, the interwar period, and then sort of stopping before the second world war. Everything "we" learned about economics seemed to be "discovered" between 1850 and 1940.

It will be interesting to look back on the late 1990s, and going through 2020, to see how the theories of economics evolve. When very, very smart folks can continue to advocate spending even when the government is $17 trillion in debt, or whatever it is, I have to be missing something. (I understand ObamaCare is now estimated to have added $2 trillion to the national debt -- future liabilities, obviously; reported in the mainstream media.)

When the government can be $17 trillion in debt, or whatever it is, and there are very smart folks who want to spend even more to "jump-start" the economy, I must be missing something.

One has to ask the question: with all this "printing of money" since 2008, why is no evidence of inflation (now) and some very smart men and women see no threat of inflation on the horizon?

Up until eleven (11) hours ago, Dennis Gartman (who is considered a smart talking head) was very, very bullish on stocks, and just a week ago said his most valuable lesson he has learned in 40 years of investing was "don't fight the Fed." Now, at least one very smart man, from a very conservative region of the country, Minneapolis Federal Reserve Bank President Narayana Kocherlakota, wants to cut rates even further. Continuation of the linked story above:
Instead, he said on Tuesday, the Fed must do better on returning the economy more rapidly to full employment and a healthy 2-percent pace of inflation.
The Fed has kept its short-term policy rate between zero and a quarter of a percentage point since December 2008, and Kocherlakota told the Greater Rochester Chamber of Commerce that "we should be thinking about" pushing it even lower.
"It's really about demonstrating a commitment to stay with the recovery for as long as it takes to get the economy fully recovered," he said.
The idea of lowering the Fed's main policy rate, already near zero, or cutting the rate the Fed pays to banks on reserves they keep locked up at the central bank, is outside the mainstream of current Fed policymaking, which currently is focused on providing guidance about what economic conditions could lead to the Fed raising rates.
Kocherlakota, whose lone dissent against the Fed's policy decision last month marks him as the central bank's most dovish member, said that guidance falls short.
He is either crazy as a loon or smart as a fox. Of course, not only does anyone know, but one can find any number of smart men and women on both sides of the coin.

I'm an inveterate optimist when it comes to almost anything, and particularly investing.

It seems 90% of "business news" is related to banking. Everything else (pharmaceuticals, energy, retail, media, entertainment) is filler. It's all about banking, somethingI know nothing about.

But I'm beginning to think the bankers and all the smart people making economic policy don't know about energy.  And that's why I'm optimistic.

2 comments:

  1. Last year the Federal budget deficit was $680 billion which is probably more than the Bakken will generate in its entire life span. That was a small deficit last year. Either money has no meaning or the United States will explode with violence when it all comes undone. I'm 68 so I may not be around but the Fed's quantitative easing and the runaway Federal spending scares me. All these smart people running things - I've seen this movie before and it's not an award winner.

    ReplyDelete
    Replies
    1. I'm almost as old, 63 this summer. Warren Buffett, 83 years old. He's probably seen the same movies, and I know he's smarter than I am, and yet, he keeps investing; he, also seems to be an inveterate optimist when it comes to investing.

      I do not understand it. All I can say is a guy like Warren Buffett must know something that I don't know.

      If somehow we muddle through this and survive -- it will be interesting to see what economists win the Nobel Prize for economics in 2020 and their theories that got us through this.

      Delete

Note: Only a member of this blog may post a comment.