Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

The Fed is Confused

Politics / Central Banks Aug 15, 2010 - 06:35 AM GMT

By: Adam_Lass

Politics

Best Financial Markets Analysis ArticleThe Federal Reserve has confused "changing nothing" for "doing nothing." The result? They are still the worst actor on Wall Street.

I was wrong.


How often are you going to see a financial columnist say THAT, eh?

But it's absolutely true. I figured that the Federal Reserve would act to prop up Wall Street by buying a billion or so in stock shares.

I didn't like the idea, mind you. In fact, I believe that this sort of active intervention on the part of our central bank is an abomination that completely distorts the psychology of the financial markets, inducing investors to buy into badly run companies in the sure knowledge that the government will repair their idiocy and fund their profits.

But in the end, the Federal Reserve chose to do nothing.

The Real Power on the Street

Well, that's not really accurate. For the past few years, the Federal Reserve has been assembling a trillion-dollar portfolio of stocks, bonds and derivatives.

It had already set the target for interbank rates at a red hair above zero, in essence inventing money from scratch and then "lending" that money for free to American banks. The idea was that the banks would mark the money up just a tiny bit and send it directly to American companies, again at almost no cost.

When that didn't serve to get the economy rolling again, the Federal Reserve began to invent and deploy "other tools." Specifically, it ginned up a second magic treasure trove of fictional dollars and simply gave it directly to Wall Street, in exchange for a veritable mountain of stocks and bonds.

Well that certainly changed the picture a bit. Over the following months, the U.S. stock market rose some 75%, a rally that only ended when the Federal Reserve stopped buying up stocks.

The Other Side of a Bad Coin

I've already mentioned one obvious catch with such interventions. The other side of that coin is that the Fed dare not intimate that things are looking up - that American companies might actually be able to turn a profit on their own - without inducing a massive sell-off.

Indeed, the slightest twitch in statement language has had an inordinate effect on stocks. Come last April, when the Fed began to hint that it might someday shut down this fountain of largesse, the financial markets reacted by collapsing some 9%, a tumble that only ended when the Fed returned to its promise of zero percent interest rates for the foreseeable future.

Which brings us to this week, with the economy neither growing nor collapsing outright, core items like houses deflating the U.S. dollar and non-core items like food gas and electricity inflating same, and stock shares stuck midway between "a steal at twice the price" and "I wouldn't touch that with a 10-foot pole."

What Comes After Limbo?

For 24 hours, the world held its collective breath while this oh-so-activist Fed board deliberated on what bold course it might chart out next, with the financial markets and the U.S. dollar rising and plunging antipodally as hints and allegations flew about.

And then, the gray men stepped forth and spoke. They conceded to the U.S. economy and financial market's stalemate, and announced that they would do... nothing.

They would not buy additional stocks, but neither would they sell the stocks they are holding as previously hinted. They would not invent more money to buy up additional federal debt, but neither would they retain the payoffs for maturing bonds, instead sending those gains back to U.S. Treasury in exchange for modest amounts of additional paper.

The gray men have attained the perfect gray-water compromise: Free marketers like myself continue to despise them for their ongoing ownership of deadbeat American companies and those companies despise them for not helping them more.

Not Heaven, That's for Sure

As I sit to write to you, investors are absolutely fleeing the financial market, trading stocks for U.S. dollars at an astounding rate, collapsing the Dow Industrials some -2.5%, and the Transports more than -4%, and the Financials -3.1%, and spiking the US Dollar Index almost 2%, all the result of Fed "inaction," or perhaps more properly said, continuation of the same ruinous actions.

I somehow doubt that this tactic will last more than 72 hours. If you were to read the FOMC's actual post meeting statement, you would note a singular footnote at the end that warns of a "technical note" to follow shortly that will address "operational details on how (the Fed) will carry out these transactions."

Now I will put my head on the block again, and make yet another prediction. Actually, it's the same prediction as I made earlier this week: When that note arrives, it will somehow contain some kind of contrived language that will allow them to stem this bleeding and funnel additional dollars to Washington's friends on Wall Street.

Maybe I'll be wrong again. It does occasionally happen.

But I doubt it.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source : http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-081210.html

By Adam Lass
http://www.taipanpublishinggroup.com/

Adam Lass is the Senior Editor of WaveStrength Options Weekly along with Bryan Bottarelli, and a regular contributor for free financial market e-letter Taipan Daily. Adam's fascination with technical analysis started in his early days as a wholesale purchasing manager, when successfully forecasting the public's future spending habits (using Treasury reports, stock trends, interest rates, even the Farmer's Almanac) meant the difference between prosperity and failure.

He has been called “one of the most brilliant charting minds in the country.” His deep insight into the economy and value analysis enables him to reliably guide readers through today's incredibly volatile market in WaveStrength Options Weekly.

Copyright © 2010, Taipan Publishing Group


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules