Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Fed Fumbling in The Dark; Investors Hold Anti-Recession Stocks In Uncertain Times

Stock-Markets / US Economy Dec 16, 2007 - 03:33 PM GMT

By: Money_and_Markets


Mike Larson writes: I don't know if you're a fan of the Benny Hill Show or if you've ever watched those old Keystone Cops films, but they both featured madcap comedy skits, with a bunch of people running around, often at cross-purposes, and ultimately accomplishing nothing.

And I was reminded of them this week by the Federal Reserve's latest actions. To recap:

On Tuesday, Fed policymakers essentially shafted the market. They delivered twin quarter-point cuts in the federal funds rate and the discount rate. Stock traders were clearly expecting the Fed to pull out the "big guns" — like a 50 basis point cut in one or both of those key interest rates.

Worse, here's what the Fed said in its post-meeting statement:

"Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

Loosely translated, that means: "We're not really sure what's going on — but we'll try to get back to you when we figure it out." These are some of the most powerful economic policymakers on the planet, and they basically admitted they can't figure the economy out. Talk about a confidence crusher!

What happened next was entirely predictable: The Dow tanked by almost 300 points.

This action must have caught the Fed off-guard, because a few hours after releasing its statement, the Fed started leaking to select reporters that the cut wasn't all it had up its sleeve. It said several unconventional measures were also planned, and newspapers like the Financial Times ran with the story.

Bernanke and the Fed must stop trying to be all things to all people!

Sure enough, on Wednesday morning, the Fed unveiled the monetary policy equivalent of a howitzer. The Fed announced that it was coordinating with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank (SNB) to flood the banking system with money.

Specifically, the Fed will auction a minimum of $40 billion in funds to banks, and accept all kinds of collateral in return, in an effort to ease the logjam in the money markets and shore up bank balance sheets. It's also authorizing $24 billion in currency swap lines with the ECB and SNB — moves designed to channel tens of billions of dollars to institutions based in those central banks' jurisdictions.

What do I make of all this?

The Fed Is Shooting in the Dark And the Markets Know It!

Look, I understand that the Fed is trying to be creative here. Their latest efforts are designed to pump liquidity into the banking system without using the broader tool they've traditionally used — cutting the federal funds rate.

They apparently don't think that's necessary because they're optimistic the economy is fundamentally okay. And they're trying to keep inflation from becoming a bigger problem.

But the latest moves smack of "flying by the seat of the pants" policymaking. They suggest the Fed lacks a captain who really knows where the economy is headed.

They're killing market confidence. And it's not like the Fed has engendered a lot of confidence in its forecasting skill over the past few years anyway. I mean ...

 Fed officials failed to raise rates early enough and steeply enough to prevent the housing boom from turning into a housing bubble.

 Fed officials failed to regulate the mortgage industry aggressively enough to prevent all the abuses we're hearing about now.

 Then after the housing bubble popped, Fed officials kept assuring us everything was fine and that the mortgage problems were "contained" to a few subprime loans. We know how accurate that call turned out to be.

It seems to me the Fed is trying to "fix" the housing, mortgage, and credit market problems without causing a broader inflation explosion. But frankly, it doesn't seem to be succeeding on either count.

I've talked plenty about housing lately, so I don't need to hammer home how that market is still suffering.

But if you missed the latest inflation news, import prices jumped 2.7% between October and November. That was much hotter than the 2% forecast of economists. And here's the real shocker:

The cost of imported goods was up a whopping 11.4% from a year earlier — the biggest gain in any month on record!

Surely "core" prices were tame though? Well, not exactly. Even if all fuel prices were excluded, import costs were still up 3% from a year ago.

Moreover, the price of imports from China is rising consistently now. The loss of cheap Chinese imports could help pressure overall consumer prices higher — something that doesn't make Ben Bernanke's job any easier.

If that weren't enough, the Producer Price Index also exploded higher last month. It soared 3.2% between October and November, more than double the 1.5% forecast and the largest monthly gain in 34 years!

Year over year, producer prices are up a hefty 7.2% — the biggest jump since November 1981. The last time that happened, 30-year Treasuries were yielding around 13% versus about 4.6% now. And in case you're wondering, the core PPI also gained 0.4%, the biggest rise since February.

Now, my invitation to join the Federal Reserve must have gotten lost in the mail. So I'm keenly aware that my voice is just one more in the economic wilderness. But my opinion is ...

The Fed Needs to Stop Being All Things To All People If It Wants to Regain Credibility

The Fed has to take a stance. It can:

  1. Target inflation aggressively and do their best to slay the beast,economic consequences be damned. That's what legendary Fed Chairman Paul Volcker ultimately did to get us out of 1970s-era stagflation.
    OR ...
  2. Just admit they're trying to reflate the housing and mortgage markets ... that they don't care if that drives inflation higher in the short term ... and that they'll deal with prices later. I mean, that's what's really going on behind all the carefully crafted econo-speak, isn't it?

That's what the oil markets ... the gold markets ... and the grain markets are telling us. The Fed can't seriously expect us to believe them when they say they're worried about inflation ... but do nothing to fight it even though import and producer prices are rising at the fastest rates in decades!

My message to Ben Bernanke: You've got to pick your poison. You've got to show leadership. That's what investors want, and that's what will instill some renewed confidence in the Fed ... confidence that's been badly shaken in recent days.

And now, my message to you ...

Hold Anti-Recession Stocks Until the Fed Finds Its Way!

These are incredibly treacherous times. We've got a Fed that seems to have lost its way. We've got an ongoing credit crisis that policymakers are trying to combat, but that don't have much to show for it yet. We've got an inflation problem that refused to go away. And we've got a broad market that's worried sick about the rudderless U.S. economy.

I suggest you hunker down ... play defense ... and stick with a few select investments, including anti-recession stocks that can actually rise in this environment. And stay tuned to all of our updates here at Money and Markets .

Until next time,


P.S. We just put a new anti-recession stock into the Safe Money Report portfolio. To learn all about it, subscribe now !

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - 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