The Wall Street Examiner Get the facts. Wed, 17 Sep 2014 05:05:05 +0000 en-US hourly 1 Did The Market Get A Second Wind Or Death Valley Rally Wed, 17 Sep 2014 04:53:23 +0000 The market held at the convergence of several support lines at 1980 and bounced hard from there, but ran into resistance at the first set of trend resistance lines around 2000.

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World Stock Markets Trading Discussion – Quaking quadrille Wed, 17 Sep 2014 01:38:22 +0000 This is a syndicated repost courtesy of The Daily Stool. To view original, click here.

Early openers scatty: Kiwis +0.1%, Aussies -0.3%, Nikkei +0.1% and Sth Korea +0.7%.

Mixed for Aussie sectors:  Gold +0.8% down to Financials -0.9%.






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(What’s Left of) Our Economy: How Tom Hanks Can Become a Real Factory Man Tue, 16 Sep 2014 22:36:35 +0000 This is a syndicated repost courtesy of RealityChek. To view original, click here.

It seems insane to be giving advice to Tom Hanks on how to make a TV series – something like telling Warren Buffett how to invest. But here goes: It’s vital that he add a coda to the HBO mini-series he plans to produce based on the widely praised book on job offshoring, Factory Man.

The message of the coda: The economic disaster produced by U.S. policies that have sent manufacturing production and employment overseas for so many years far transcends the furniture industry on which Beth Macy’s work focuses. In fact, the demise of that relatively labor-intensive sector and its employees, however tragic for the workers involved, is both yesterday’s news and among the least of the nation’s trade and manufacturing worries. What Americans really need to worry about is the mass offshoring of much higher value production and jobs.

Although I haven’t read Factory Man, I have met its central figure, John Bassett III, and greatly admire his efforts to fight off Chinese dumping and save his family’s furniture business, Vaughan Bassett. But whatever Bassett’s success – and the company’s 700 workers reportedly now generate annual sales of $80 million – the sector still faces a formidable road back to vibrancy.

For example, over the last ten years, its inflation-adjusted output has dropped by more than 25 percent (versus 12+ percent growth for manufacturing as a whole). And measured by a slightly different set of government data, its share of real manufacturing output fell from 2.29 percent to 1.29 percent between 2002 and 2012. It’s true that furniture’s fortunes have taken an outsized hit from the bursting of the housing bubble. But it’s also true that in the early part of the last decade, the bubble’s inflation gave it an outsized boost.

The furniture industry keeps bleeding jobs as well – more than 39 percent of them between July, 2004 and July, 2014. As a result, furniture workers now comprise only 1.94 percent of all manufacturing workers – down from 2.71 percent ten years ago. Real wages for non-supervisory (blue-collar) employees are down 5.35 percent during this period – versus 3.69 percent for all such manufacturing workers. They’re also 20 percent lower. And although the furniture industry’s trade deficit has been worsening faster than manufacturing’s overall, it was still only 3.52 percent of American industry’s total.

Just as important, because furniture is a relatively labor-intensive industry as well as a relatively small one, its travails don’t overly trouble even many commentators who (at least say that they) sympathize with the victims of offshoring. As pointed out in a recent post, New York Times columnist Joe Nocera recently bemoaned the “suffering on millions of people” inflicted by globalization, but approvingly quoted an academic economist who declared, “In reality, we shouldn’t be making bedroom furniture anymore in the United States. Shouldn’t we instead be trying to educate these workers’ kids to get them into high-skilled jobs and away from what’s basically an archaic industry?” And if this is how sympathizers have reacted to Macy’s book, imagine how the offshoring lobby and its government flunkies will tear into Hanks’ movie.

So although Hanks’ interest in offshoring deserves enthusiastic applause, if he really wants to perform a public service and not just jerk tears, he’ll point out that the United States runs sizable trade deficits in pharmaceuticals; semiconductors; telecommunications equipment; the most advanced auto parts; industrial controls; guidance systems; machine tools and machine tool parts; electro-medical devices; ball bearings; construction equipment; autos; steel; and numerous other high value products vital to America’s future as a first world country with first world living standards. These and dozens more sectors are steadily losing share of their home U.S. market to import competition – much of its coming from offshored U.S.-owned or affiliated factories.

Hanks’ decision to bring Factory Man to the small screen is a tremendous and rare opportunity for the nation. But unless he makes clear the full dimensions of job (and production) offshoring, his good intentions could easily result in a tremendous and rare opportunity lost.

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The Best Investments for a Rising U.S. Dollar Tue, 16 Sep 2014 20:42:50 +0000 The British pound is getting slammed as we near Scotland's vote for independence, so the U.S. dollar is rising compared to this move.

This is a syndicated repost courtesy of Money Morning. To view original, click here.

The latest Poll of Polls compiled by political expert Professor John Curtiss of suggests a neck-and-neck race with those favoring Scottish independence almost evenly divided with those who don’t. The outcome, which will be decided on Sept. 18, – less than 72 hours from now – is going to lead to a whole host of unintended consequences.

Chief among them is the rise of the U.S. dollar – a move that’s going to take many investors who are fed up with Washington’s meddling by surprise.

Just over a week ago, when the first polls were released showing that the move for independence was gathering momentum, the pound sterling slipped to a 10-month low, trading at $1.6115 against the U.S. dollar. Lloyds Banking Group, for instance, lost £1.7 billion ($2.77 billion) by noon the day the poll was released while Standard Life shares also got knocked to the tune of £400 million ($651 million), as did other companies with similar exposure.

Since then, the British pound has gotten, well, pounded.

best investments for a rising u.s. dollar

The misery is undoubtedly a long way from over.

And if Scotland actually goes through with this? I believe we’re looking at a 5% to 8% collapse of the pound sterling. Perhaps even 10%!

A report by Spear’s magazine and Wealth Insight suggests that one in seven, or roughly 15%, of Scotland’s 22,000 millionaires will leave in this event. There is an almost total lack of apparent thought with regard to financial stability and the already high tax regime in place. A newly independent nation would be devastating to the property markets and an estimated £5 million ($8.14 million) worth of real estate deals would immediately come off the table according to estate agents as reported by the Daily Mail. Public-private infrastructure projects would no longer be backed by the British government and foreign direct investment would grind to an unceremonious halt.

Long story short, a vote for independence is going to unleash a brand new flight to safety as traders make a beeline to the U.S. dollar. Treasuries will rise, rates will fall, and commodities, which are largely priced in dollars, will go with them. That’s because a rising dollar will make everything from oil to gold more expensive. Traders, who are keen to preserve margins and sales, will drop prices almost in lockstep in an effort to keep up.

Rising U.S. Dollar Is an Investing Opportunity in Disguise

For people who don’t put the pieces together like we do, this is going to seem like an excuse to sell out of metals, oil, drillers, and much of the resource sector. Many already are.

But I think that’s a tremendous mistake. If anything, a flight to the dollar is a monster buying opportunity and a tremendously bullish signal for the commodity complex longer term.

That’s because what I am describing is nothing more than a short-term market dislocation. It does not affect how specific resource companies operate nor does it change the underlying demand for their products – which as you know from other columns I have written over the years – is growing by leaps and bounds.

For example…

China has accumulated more than 4,000 tonnes of gold in the past 13 years (and that’s only counting the gold imports Beijing chooses to admit to.) Meanwhile, it continues to buy more, having imported a record 1,108 tonnes in 2013 alone.

Industrial silver demand  has already grown by 5% compared to last year, and is expected to continue to boom thanks to increased use in the photovoltaics industry as solar panels become more common.

The demand for aluminum is set to climb steadily, as China – which already consumes more than a third of the world’s aluminum – ramps up its production of automobiles. Expect additional demand from India and much of South America, too.

While the global demand for gas has grown by 2.7% per year since 2000, the demand for liquefied natural gas (LNG) has risen by 7.6% per year in the same period… and LNG is forecasted by the IEA to meet 25% of the world’s energy needs by the year 2035, up from 21% today.

National economic trajectories and decade-long demographic trends are simply more powerful than any short-term ripples caused by a failing British pound or a rising U.S. dollar for that matter.

But few investors seem to keep this in mind whenever a fundamentally sound industry is rocked by temporary outside forces. And that’s what’s happening with companies that are rooted in (or sometimes even merely connected to) the oil and gas industry.

Take Teekay LNG Partners (NYSE: TGP), Northern Tier Energy LP (NYSE: NTI), and Brookfield Asset Management Inc. (NYSE: BAM). These are industries that deal directly in the fields of oil and gas or, in BAM’s case, manage a portfolio that’s heavy in energy companies. They’ve suffered little dips in stock price ranging from 2% to 3% in the wake of YouGov’s poll.

If Scotland goes solo, these companies (and other enterprises that deal in commodities) will take a hit as the dollar is propped up even further. And that’s a beautiful entry point for savvy investors, especially if they are concerned about the longer term viability of the U.S. dollar, as I am.

That’s because these companies – temporarily out of favor thanks to more expensive commodities – will be back again in a big way once the status quo reasserts itself.

Simply put, with these minor dips we’ve already seen, they’re good “Buy” options. Plus, if geopolitical flare-ups stabilize and the dollar returns to normal, they’re still solid investments, companies with products that position them to ride the wave of the future.

And if the dollar rises even higher? That will signal an even better time to invest.

A Time-Tested Strategy to Play a Rising U.S. Dollar

No doubt many investors will try to time this. But that’s truly a losing game. Timing the markets rarely, if ever, works and the latest data from Dalbar suggests that it costs investors billions in terms of lost opportunity and reduced performance over time.

Dollar-cost averaging is the way to go.

If you’re not familiar with it, dollar-cost averaging is a trading technique that commits users to buying a fixed-dollar amount of a company on a regular schedule, regardless of trends in share price. It’s a strategy that helps its users ensure that they buy more shares at low prices, making their overall investment look like a “buy low, sell high” strategy executed to perfection, especially when we’re talking about a massive dislocation like the pound.

For example, let’s say an investor is attracted to the company ABC. She decides to set aside $100 per month towards buying shares of the company. In August, it’s trading at $20 a share, so she scoops up five shares at $20 apiece.

In September the stock plunges to a mere $10 a share. She buys $100 worth of stock again, owning 10 more shares and bringing her portfolio up to 15 shares of company ABC. By October the stock has rallied to its original price, and she sends in a buy order for another five shares at $20 each. Her portfolio then consists of 20 shares of ABC, worth $400… though she only paid $300 for it because her dollar-cost averaging strategy helped her to buy most of her shares at a lower price.

It’s a strategy that works whichever direction a stock swings… so long as that direction isn’t constantly and consistently downwards. As I’ve said, I expect the stocks of these three companies to continue to drift downward over the next few days, if only by a percentage point or two. Of course, if the Scots surprise the world and go through with their “yes” vote, expect these companies to fall even further before they stabilize.

Any way you slice it, TGP, BAM, and NTI are first-caliber buy opportunities that are blessed with solid management, positioning in the global market to profit from unstoppable economic trends, and, as of this week, discounted prices that mark a window of opportunity.

The Perfect Way to Play This

I recommend that readers use dollar-cost averaging to capitalize on this opening, setting aside no more than 1% to 3% of their capital to purchase a fixed-dollar amount worth of shares of one or more of these companies over the next few months.

In the meantime, one of the great reasons to use dollar-cost averaging comes into play. You can watch the prices fall without any sense of trepidation if you use it. And, if prices somehow fall sharply over the next few months? Great – you can scoop up even more shares at a bargain price as long as you stick to both your “schedule” and your purchasing. If they climb unexpectedly quickly? That’s fine, too – you’ve locked in profits!

Either way you potentially win BIG knowing that you’re smarter than the investors driving the selling in a fit of short-term panic.

NOW: There’s a dangerous “Helicopter Money” delusion spreading around Wall Street. Here’s the truth behind this radical idea that’s gaining popularity…

The post The Best Investments for a Rising U.S. Dollar appeared first on Money Morning – Only the News You Can Profit From.

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How Scottish Independence Will Affect Energy Prices Tue, 16 Sep 2014 20:21:58 +0000 On Thursday, there will be a vote in Scotland to decide whether it will separate from the rest of the U.K., and the latest polls are too close to call.

For the government, Scottish independence would be a direct rejection of Prime Minister David Cameron.

This is a syndicated repost courtesy of Money Morning. To view original, click here.

This isn’t the first time the devolution movement has threatened to break up the United Kingdom.

Scotland and Wales were considering their independence when I was living in London and lecturing at the London School of Economics almost forty years ago.

These days it seems like “déjà vu all over again.”

On Thursday, there will be a vote in Scotland to decide whether it will separate from the rest of the U.K., and the latest polls are too close to call.

On the previous occasions, London always provided some concessions and the moves to break away failed. This time, however, the drive for an independent Scotland is better organized, led, and financed.

energy prices

Either way, the latest vote appears to be a tight one.

For the government, Scottish independence would be a direct rejection of Prime Minister David Cameron. Yet on the other side of the aisle, the Labour Party would lose a significant number of Scottish seats in the U.K. Parliament, reducing its chances of unseating the Conservative-Liberal coalition anytime soon.

And there are numerous implications for energy prices if the vote succeeds…

The Prospect of Higher Energy Prices

Of course, the frustrations leading up to this moment have been building for some time. In fact, it began in earnest with the major oil and gas finds off the coast in the North Sea.

Scotland has benefitted from North Sea oil and gas, turning declining cities like Aberdeen into world-leading centers for offshore technology and services. Yet the north has long argued that London benefitted more from the offshore flow than Scotland did.

To some, the huge gains in oil revenue just bailed out a struggling central budget at the expense of renovating the local Scottish economy. But on the other side, as “unionists” point out, Scotland has also received stipends covering about 90% of the electricity generated from renewable sources, especially wind power.

This has significantly offset the actual costs of energy in wide areas of Scotland where the effective unemployment rate remains the highest in the U.K. When I was in Dundee last year, the employment rate was a staggering 63%, and the situation has deteriorated since then.

The lag in economic development in most sectors, other than oil and gas, has been an increasingly strong point for separation. As a consequence, the Scottish National Party (SNP) has experienced a windfall of support.

However, the vote has caused concerns among Scottish consumers. According to U.K. government reports, average yearly energy bills for Scots will go up by £189 (over $306 at current exchange rates) if independence occurs. That’s because bill payers in the rest of the U.K. effectively subsidize the cost of investing in renewable energy in Scotland.

Yet Scots themselves are hardly alone in their concerns about energy prices as the vote approaches.

English households to the south are worried that consumer bills will rise if the SNP succeeds, since the U.K. as a whole would be stripped of Scotland’s oil reserves and wind energy.

The truth is nobody really knows how much the average household on either side of the border would pay. On the other hand, there are few who believe either Scots or English consumers will see their bills reduced.

All of this has brought more attention to the wind power subsidies. Scotland has substantial wind power already in place (both inland and offshore), but that electricity is still expensive to produce and requires government support to make it affordable to the market.

Independence would require that Edinburgh (the capital of Scotland now and certainly after separation) pick up a bill currently covered by the U.K. budget. Just about everybody has concluded this will take place through either higher energy bills, higher taxes, or both. Proponents and opponents of independence differ markedly on how much the bill and/or tax hikes would be, but not on whether they will be coming.

A separate scenario has emerged in which Scotland could actually make some revenue from selling its wind-generated power to England and Wales. Edinburgh would still need to develop the wind network and pay for its operations.

Here is where the European Union comes in. The EU now mandates that 15% of energy is to come from renewable sources. Whether a newly independent Scotland would petition to become an EU member is one thing. That it would allow the U.K. to meet its obligations is another. This has prompted some analysts to believe the two independent countries would have to end up sharing the costs of Scottish wind production.

But the EU is hardly static on such matters. Commentators have pointed out that Brussels could well mandate a higher percentage for Scotland, given its greater capacity for wind power and the virtual certainty that it would possess a surplus. The EU already does that with Sweden and its hydropower targets.

Even the ability to sell wind-generated electricity south is not automatically beneficial. Economists have noted that during warmer months of the year Scotland would be forced to sell electricity to England at a steep discount, losing money in the process.

Meanwhile, the concerns in the south seem clearer. Losing control over North Sea production almost certainly will increase prices for energy in England and Wales. Those in Scotland opposed to independence, therefore, still believe London will sweeten the pot with concessions in other areas to avoid a split.

The Big Risk in the “Independent World”

The big unknown is what will happen to gasoline and other oil product prices. The U.K. still relies on Scottish access to the North Sea but would no longer administer it. Quid pro quo price adjustments might add to the uncertainties in an “independent world.”

And it is here where a greater impact may be felt by the U.K. as a result. Oil and oil products sold internationally are denominated in U.S. dollars. Even domestic sales of gasoline, diesel, and heating fuel are impacted by the “dollar effect,” regardless of the currency in which a retail sale is actually made.

As speculation increases over the Scottish vote, the Great British pound sterling has fallen to its lowest level against the dollar in almost a year. Now the overwhelming assumption points to an even steeper drop if Scotland goes its own way.

Two things will happen if this occurs. First, it will cost more for individuals and businesses to acquire fuel throughout the U.K. and in a new independent Scotland. Second, it will affect the price of the Brent crude benchmark price set each day in London.

Brent is now the dominant benchmark rate against which daily oil trades are priced worldwide. It is also denominated in dollars. But as the price is set in London, based on the price of a basket of North Sea production, the new uncertainty factor will place even greater pressure on the currency values underpinning that price.

This latter consideration will have an immediate impact on oil pricing volatility in many global regions well distanced from London or Edinburgh.

Meanwhile, other consumer considerations are also being debated. Providers of cell phone, postal, and Internet services have not commented (officially, at least) on whether the cost of communication services would increase between what would be separate countries in the wake of independence.

For instance, would calling Glasgow from just across the border now incur roaming costs?

This is not simply an example of fear mongering by those opposed to independence. In this case there is a precedent. The U.K.’s three biggest mobile providers – EE, O2, and Vodafone – offer services in Northern Ireland (a part of the U.K.) and the Republic of Ireland (an independent country), but charge their respective customers for roaming on either side of the border.

Every time I am in the U.K. my cell phone bill goes through the roof anyway. And now I may also feel a pinch in the wallet from going online as well.

Mel Gibson may be famous for yelling “Freedom” at the end of Braveheart. But if Scotland takes the same course, it will have another effect.

It is going to cost me more money!

More from Dr. Kent Moors: Geothermal power may be the smallest of the renewable energy sources, but that won’t stop it from becoming the next energy “hot potato.” Here’s why geothermal energy could be the next great battleground over fracking…

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Investigation of D.C.-Wall Street Corruption Hits Yet Another Roadblock Tue, 16 Sep 2014 17:38:48 +0000 There's a new twist in an ongoing U.S. Securities and Exchange Commission probe into D.C.-Wall Street corruption.

For months now, the SEC has been investigating whether anyone in the federal government leaked inside information to a Washington-based investment research firm. And now up to 44 hedge funds that may have traded on that inside information are under close scrutiny.

This is a syndicated repost courtesy of Money Morning. To view original, click here.

There’s a new twist in an ongoing U.S. Securities and Exchange Commission probe into Washington-Wall Street corruption.

For months now, the SEC has been investigating whether anyone in the federal government leaked inside information to a Washington-based investment research firm.

Wall StreetWhile that was pretty juicy already, those investigators are now looking at up to 44 hedge funds that may have traded on that inside information.

If you already thought our public servants were greedy, dirty, and corrupt, well, this helps prove your case.

If, on the other hand, you think our folks in D.C. are pure, altruistic angels, today I’m going to convince you otherwise…

Suspicious Timeline Points to D.C.-Wall Street Corruption

At 3:42 p.m. on April 1, 2013, more than 150 investor clients of Height Securities were sent an email predicting that the federal Centers for Medicare and Medicaid Services (CMS) would reverse course on planned funding cuts for private insurance plans.

Based on the “prediction,” the Wall Street hedge funds now under investigation bought shares of insurance companies that would benefit if CMS did in fact reverse its stance.

And, wouldn’t you know it, at 4:22 p.m. that same afternoon, the folks at CMS announced they were reversing themselves. In after-hours trading and over the next several days, insurance company stocks soared.

The SEC investigators believe the Height Securities analysts told the hedge-fund traders – immediately after the initial email was sent to Height’s 150 clients – that Height’s information was based on a “credible source” in the federal government.

If the credible source was leaking inside information, or the traders even thought that Height’s tip was inside information, and they acted on it, those hedge funds could be charged.

It’s all well and good that the SEC is looking into who made what on their trading. But what’s far more interesting and important is who the credible source was.

Was he or she paid? Was he or she given the inside information by anyone in the government who was paid?

Whether we find all this out or not may be based on an upcoming judge’s ruling.

That’s because the credible source, Brian Sutter, a top House of Representatives health care aide, has refused to comply with an SEC subpoena in the matter. Sutter ignored the subpoena based on the advice of congressional lawyers.

That prompted the SEC to file a federal lawsuit seeking to force Sutter to turn over his communications and records to investigators. The judge hearing the case is expected to rule any day now.

What is known to have happened, based on email and phone records, is that Sutter spoke to health care lobbyist Mark Hayes, who previously worked for Height Securities. And within 10 minutes, Hayes communicated CMS’s change of course to someone at Height, citing a “credible source.”

The SEC, to its immense credit, is actually investigating the Washington political-intelligence industry. That the investigators have been stymied by House lawyers is indicative of something.

Some D.C. watchers say it’s indicative of the separation-of-powers issues that come up when the executive branch investigates the legislative branch.

I say poppycock. It’s indicative of a cover-up.

Here’s what I want to know.

Are people in and around Congress making money directly (envelopes of cash) or indirectly (campaign donations) by channeling inside information to Wall Street hedge funds?

Do you think we’ll ever find out?

More from Shah Gilani: The U.S. Federal Reserve was created in 1913 to provide a safer and more stable monetary and financial system. But its actual role today is much more sinister. Here’s how the Federal Reserve is killing America…

The post Investigation of D.C.-Wall Street Corruption Hits Yet Another Roadblock appeared first on Money Morning – Only the News You Can Profit From.

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This Week’s FOMC Meeting: Words Are Everything Tue, 16 Sep 2014 15:35:13 +0000 Since December 2013, the U.S. Federal Reserve's Federal Open Market Committee (FOMC) meeting has been a routine exercise couched in humdrum Fedspeak and muted discussions on future monetary policy.

But with the meetings happening today (Tuesday) and tomorrow, it's becoming clear that the Fed can't stick to the same script for much longer, and at some point, the nation's central bank is going to have to come clean on when it plans to raise interest rates from its near-zero levels.

This is a syndicated repost courtesy of Money Morning. To view original, click here.

FOMC meetingSince December 2013, the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) meeting has been a routine exercise couched in humdrum Fedspeak and muted discussions on future monetary policy.

But with the meetings happening today (Tuesday) and tomorrow, it’s becoming clear that the Fed can’t stick to the same script for much longer, and, at some point, the nation’s central bank is going to have to come clean on when it plans to raise interest rates from its near-zero levels.

This is because this meeting will mark the last time the Fed is going to trim its large-scale, two-year bond-buying program known as quantitative easing round 3 (QE3), before it exits the program altogether next month.

Since December, under former Fed chairman Ben Bernanke, the Fed has deemed the economy healthy enough to wean it off of its aggressive money-printing regime that began in Sept. 2012 and swelled the central bank’s balance sheet from $2.9 trillion in assets to $4.5 trillion.

This came with the announcement that QE3, which began as a monthly $85 billion purchase of agency mortgage-backed securities and long-term treasuries – as a way to push down interest rates and bring more money into the broader economy – would be trimmed by $10 billion.

In each Fed meeting following that, the Fed has cut the program an additional $10 billion. After tomorrow’s meeting, another $10 billion cut will trim the program down to a $15 billion-a-month program. Prior Fed minutes indicate that next month, the Fed will eliminate the program altogether.

But even as this easing is coming to an end, the Fed has echoed the same refrain on interest rates and hasn’t deviated from its vague suggestion that interest rates should remain at near-zero levels for a “considerable” time.

So, when are we going to see a rise in interest rates?

The Fed’s Interest Rate Wordplay

There’s almost no chance that the answer will be clearer tomorrow, at least not in any explicit manner.

The only inkling Fed observers might get that Chairwoman Janet Yellen is considering a more open discussion on an interest rate timeline is through her words.

Yellen won’t provide an overt blueprint of Fed interest rate policy. Instead, the “considerable” period will morph into a “softening to those words, or rhetoric moving away from keeping things as they are,” Executive-in-Residence and Professor of the Practice at the University of Maryland’s Robert H. Smith School of Business, Clifford Rossi told Money Morning.

With such a powerful influence on markets, Yellen isn’t going to shake investor confidence by making an outright proclamation on interest rates.

In a press conference in March, following an FOMC meeting, Yellen was asked how long after the end of QE3 the Fed will be working to push up rates; she suggested it could be six months after its end.

At that time, it sounded like a more obvious timeline was set, different from what many Fed observers had anticipated. The consensus was that interest rates would spike sometime in the second half of 2015.

Yellen’s comments, with the pace of tapering at the time, suggested the hike could come in the first half of next year.

This was enough to spook investors. The S&P 500 dropped 11.48 points, or 0.6% on the day, while the Dow Jones Industrial Average fell 114.02 points, or 0.7%.

That’s what the markets will be watching from here on out. As Money Morning Chief Investment Specialist Keith Fitz-Gerald has said of recent Fed meetings, the major indexes are going to be looking for “whether or not Yellen deviates from anything she’s said to date.”

“That’s what’s going to have a material effect on the markets,” Fitz-Gerald said.

As far as the economic projections that the Fed releases after each meeting are concerned, those aren’t going to have much of an impact.

“The Fed has been wrong about every indicator it has ever looked at for the last 20 years,” Fitz-Gerald said, “But especially its take on the economic health of the United States since the financial crisis started.”

More on the Fed: James Rickards has been speaking out on the dangers of Federal Reserve policy for several years. Recently Money Morning conducted an exclusive interview with Rickards that covered not just the Fed, but an entire series of economic threats that he believes could send America into a 25-year depression. To watch this must-see interview, click here.

The post This Week’s FOMC Meeting: Words Are Everything appeared first on Money Morning – Only the News You Can Profit From.

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Those Stubborn Facts: The Apple-izing of Economics Reporting Tue, 16 Sep 2014 13:39:35 +0000 This is a syndicated repost courtesy of RealityChek. To view original, click here.

Google News mentions of “Apple Watch,” September 16, 2013: 10.9 million

Google News mentions of “iPhone6,” September 16, 2014: 294,000

Google News mentions of “U.S. economy,” September 16, 2014: 42,900

(Sources: Google News searches 9:15 AM EST, September 16,2014)

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Gold Still Has Work To Do Tue, 16 Sep 2014 13:28:01 +0000 Gold has reached the 13 week cycle projection but other cycles still have lower projections.

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The Truth Behind the Dangerous “Helicopter Money” Delusion Tue, 16 Sep 2014 09:00:16 +0000 Seeking out major trends and power shifts in the global economy is a part of my work that I enjoy most.

This is a syndicated repost courtesy of Money Morning. To view original, click here.

A piece I recently read in Foreign Affairs absolutely shocked me…

The piece is a bit revolutionary, as its authors speak to a drastically different way of stimulating an ailing economy than the path we’re on today.

In fact, the ideas and views are so radical that I couldn’t help but wonder why the authors were taking such an unusual position. What I found was just as shocking as their views.

After all, their theories, and the policymakers who embrace them, pose an existential threat to all our wealth…

This Strategy Is (Quite Literally) an Old Joke

The article in question is “Print Less But Transfer More: Why Central Banks Should Give Money Directly to the People” by Mark Blyth and Eric Lonergan.

It appeared on the website and it is published by the Council on Foreign Relations.

Essentially, Blyth and Lonergan recommend a completely new approach to economic stimulation: Have the Fed create cash, and deposit it directly into people’s bank accounts.

It’s actually an idea the renowned economist Milton Friedman came up with in jest, and the origin of the phrase “dropping money out of a helicopter,” which he famously quipped could be used to fight price deflation.

Ben Bernanke, while teaching economics at Princeton in 1998, also suggested the Bank of Japan could give cash directly to consumers to boost demand and kick-start inflation.

There are so many problems with this proposal as presented in Foreign Affairs, I hardly know where to start.

But let’s take a look at just some of the assertions, and ideas that have me so fired up.

Like this one:

Today, most economists agree that like Japan in the late 1990s, the global economy is suffering from insufficient spending, a problem that stems from a larger failure of governance… It’s well past time, then, for U.S. policymakers – as well as their counterparts in other developed countries – to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them.

Are you kidding me? First of all, if most economists agree, then chances are they’re wrong. What do the authors expect will happen when the Fed stops giving cash directly to citizens?

And what about the risk people will become dependent on even more government handouts? Already over 50% of American households receive some form of government benefits.

And what about the inflationary effects of just printing money, with no underlying productive economic activity (good or service) to justify this supposed “wealth”?


The Irrational Fear of Deflation

Come to think of it, if that were all it took, why isn’t Zimbabwe the richest nation on the planet? Its central bank tried the solution of printing insane amounts of money.

In 1998 Zimbabwe’s inflation rate was 32%. By 2008 it hit an astronomical monthly rate of 79,600,000,000%.

Eventually, Z$100 billion dollar notes were issued. The Zimbabwe dollar became so worthless that signs like the one above were posted in public restrooms.

Nevertheless, Blyth and Lonergan continue:

Other governments have still followed Bernanke’s lead. Japan’s central bank, for example, has tried to use its own policy of quantitative easing to lift its stock market. So far, however, Tokyo’s efforts have failed to counteract the country’s chronic under-consumption…And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.

Governments are terrified of deflation because of the massive debts which they know they will never be able to repay, or admit. Deflation increases the value of debt making it more costly. All they can do is try to create inflation so that the future cost of the debt becomes manageable.

But deflation is actually positive for the average person. Prices of goods and services decline, allowing the same income to buy more.

As Money Morning Special Contributor Jim Rickards describes in his recent book The Death of Money, former Japanese deputy finance minister Eisuke “Mr. Yen” Sakakibara understands this phenomenon. He explains Sakakibara’s view that “…because of Japan’s declining population, real GDP per capita will grow faster than real aggregate GDP. Far from a disaster story, a Japan that has deflation, depopulation, and declining nominal GDP can nevertheless produce robust real per capita GDP growth for its citizens. Combined with the accumulated wealth of the Japanese people, this condition can result in a well-to-do society even in the face of nominal growth that would cause most central bankers to flood the economy with money.”

This is exactly what we’ve seen with the “Abenomics” phenomenon.

Rickards continues:

Sakakibara’s insights, that monetary remedies will not solve structural problems, and that real growth is more important than nominal growth, are being ignored by central banks in both the United States and Japan. The Federal Reserve and the Bank of Japan will pursue the money-printing pseudo-remedy as far as possible until investors finally lose confidence in their currencies, their bonds, or both. Japan, the canary, will likely suffer this crisis first.

On the other hand, Blyth and Lonergan write:

The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Such an approach would represent the first significant innovation in monetary policy since the inception of central banking, yet it would not be a radical departure from the status quo. Most citizens already trust their central banks to manipulate interest rates [emphasis added].

How do these guys know that “Most citizens already trust their central banks to manipulate interest rates”?

Besides, can any statement be more misleading? They admit interest rates are “manipulated.” Yet they claim citizens “trust” their central bank to do this. Newsflash: nearly one year ago, a Pew Research Center report indicated that just 19% of Americans surveyed said they trust the federal government to do what is right just about always/most of the time, right near an all-time low.

Finally, Blyth and Lonergan make their most outrageous assertion:

Conventional accounting treats money – bank notes and reserves – as a liability. So if one of these banks were to issue cash transfers in excess of its assets, it could technically have a negative net worth. Yet it makes no sense to worry about the solvency of central banks: after all, they can always print more money… Moreover, many American conservatives consider cash transfers to be socialist handouts.

I can hardly contain my laughter. Central banks are supposed to be the backstop for the banking system. We should all worry about their solvency, especially when they keep printing more money. That’s exactly the sort of thing that destroys people’s confidence in them.

Blyth and Lonergan state the obvious in such a nonchalant way, it’s clear they figure their ideas are quickly becoming conventional thinking.

I also have to give credit where it’s due. Sometimes stating the obvious is not that easy. Cash transfers are socialist handouts, especially if you’re targeting the bottom 80% of households. That’s because inflation caused by the printed money becomes a cost to all of society, but in particular it becomes a wealth transfer, especially from those with savings to those without.

Here’s what’s really happening here…

This Is More Sinister Than Just Policymakers’ Popular Delusions

Most of the suggestions and arguments put forward in this article are so nonsensical, I’d be embarrassed to put my name to them.

It even made me wonder if the authors could be misleading readers. Well, if you look a little deeper into the organization behind the article, that just may be your conclusion.

You see, Foreign Affairs is published by the Council on Foreign Relations (CFR). Sure, there are lots of prominent leaders, business people, and media who are members. But it’s often their influence and what they do with it that’s the problem.

This is nothing other than the fox guarding the chicken coop, and Jim Rickards revealed this fundamental conflict of interest in The Death of Money:

The members of the [former Treasury Secretary] Robert Rubin clique are extraordinary in the incompetence they displayed during their years in public and private service, and in the financial devastation they left in their wake.

Rubin and his subordinate and successor, Larry Summers, promoted the two most financially destructive legislative changes in the past century: Glass-Steagall repeal in 1999, which allowed banks to operate like hedge funds; and derivatives regulation repeal in 2000, which opened the door to massive hidden leverage by banks… The lost wealth and personal hardship resulting from the Rubin clique’s policies are incalculable, yet their economic influence continues unabated. Today, Rubin still minds the global store from his seat as co-chairman of the nonprofit Council on Foreign Relations [emphasis added].

Let’s sidestep this self-serving “journalism” altogether…

A Better Source of (Impartial) Information

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The post The Truth Behind the Dangerous “Helicopter Money” Delusion appeared first on Money Morning – Only the News You Can Profit From.

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