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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Jim Grant on Ben Bernanke

On June 23, 2011, in Economy, Stocks, by Tim

Amid all of today’s post-FOMC discussion about what Fed Chief Ben Bernanke did and did not say yesterday about the effects of the last round of money printing and what the Fed might do to aid a clearly ailing economy (and, as of late yesterday, plunging financial markets), this pre-FOMC Bloomberg interview with Jim Grant of Grant’s Interest Rate Observer provides some interesting insights.

Says Grant:

The Fed has two edicts – it’s meant to promote full employment and stable prices. This business about levitating stock prices is something new and I think it’s a quite dangerous thing. How are we to know that this 30 percent gain in the Russell and 20 percent gain in Dow since the Chairman spoke in August of last year … how are we to know these are real values? The prices are up, but are people who are buying these stocks on the back of the Fed, are they doing something that is wise and considered from an investment point of view? And if the market is too high because the Fed has put it there, what does the Fed do when the market comes down, which I think opens the gate for QE3.

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The U.S. Bubble Economy

On June 10, 2011, in Housing, Stocks, by Tim

Here’s the quarterly update of the household assets chart from the Federal Reserve’s Z1 Flow of Funds report showing how, so far, the central bank is succeeding in keeping overall asset prices inflated following the most recent crash in late-2008 and early-2009.

The real estate bubble keeps deflating, but they’ve been doing their best to keep pushing air into what, up until six weeks ago, appeared to be a new stock market bubble centered around technology shares and IPOs reminiscent of the glory days of the late 1990s.

What a way to run an economy…

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Why So Much Confusion on QE3?

On June 10, 2011, in Commodities, Stocks, by Tim

Honestly. Why is everyone so confused and conflicted about whether or not we’ll have another round of money printing from the central bank, more politely referred to as QE3 or “quantitative easing” part III.

It’s as simple as this:

  • If U.S. stocks threaten to fall 20 percent – what most investors will see as a new bear market – the Fed will ride to the rescue since, as we all learned last fall, Ben Bernanke added a third mandate – perpetually higher stock prices.
  • If U.S. stocks don’t threaten this mark, then there will be no QE3.

In this report at CNBC, hedge fund manager David Tepper said as much:

No More Fed Easing Unless Stocks Drop More: Tepper

Noted hedge fund manager David Tepper doubts the Federal Reserve will continue its intervention in the markets unless things get considerably worse.

The head of Appaloosa Management and source of the “Tepper Rally” that generated a huge run in the market last September said in an email to CNBC that stocks would have to fall considerably more before the Fed would start another round of quantitative easing, or QE.

“If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they would reconsider,” Tepper wrote. “But there is no logic to QE3 now and the only result might be more food and energy inflation.”

If the S&P500 falls 200 points from it’s current 1277 level, that would be another 15 percent decline in addition to the five or six percent drop from the recent peak, so, the “couple hundred points” would be more than enough to get the Fed’s attention, at which point, the oil price might be back in the $80 range with gasoline prices barreling back toward $3 a gallon and Ben Bernanke will have adequate cover in the renewed concern over de-flation.

It’s not that complicated.

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Expectations for QE3 Vary Widely

On June 2, 2011, in Banks, Economy, Stocks, by Tim

The QE3 prognosticators (i.e., those offering their opinions about the likelihood and timing of a third round of quantitative easing, otherwise known as Federal Reserve money printing that, so far, has been unsuccessful in reviving the U.S. economy, though it’s done wonders for stocks and commodities) are all over the map this morning as they digest yesterday’s weak economic numbers and take a stab at the most important financial market question of the day – if and when the central bank will be summoned to action.

Here’s a partial list of the predictions from the links post earlier today:

• Why Fed Is Unlikely to Have Third Round of Easing – El-Erian, CNBC
• Jobs malaise warrants easy policy: Fed officials – Reuters
• All eyes on Bernanke, but QE3 has sailed – MarketWatch
• The Fed’s summer of discontent – Barr, Fortune
• Fed’s Williams Says Banks Reluctant to Increase Lending – Bloomberg
• Breaking News! QE II is not ending! – A Dash of Insight

Now, for those of you forming your own opinion about what might come this summer or fall, all you really have to do is read what Mohamed El-Erian of Pimco has to say on the subject and take the opposing view, his mid-2009 call that stocks had hit a wall after experiencing a “sugar rush” being a market outlook that should have forever precluded him from offering his thoughts on this type of thing again.

Colin Barr at Fortune seems to have a much better grasp on the situation, noting that if stocks and commodity prices fall as fast as they’ve risen recently, then we could see a “round trip” in prices that would remove the inflation bogeyman from the Fed’s decision making process:

This unpleasant round trip and Bernanke’s acute appreciation of central banking mistakes of the past are why the Fed will risk another round of political mudslinging to try to prop up the economy again. No one, after all, wants to be the guy who sat idly by as the economy slips into recession in a replay of 1937, however many stories about $5 gas that decision ultimately results in.

We’ll see… just because gas costs almost $4 a gallon today doesn’t mean that it’s going to stay there between now and the time that the Fed meets in Jackson, Wyoming in August.

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Faber Sees Market Correction, QE3, War

On May 27, 2011, in Commodities, Currencies, Economy, Stocks, by Tim

Market prognosticator and Gloom, Boom, and Doomer Marc Faber was again warning about falling stocks prices, money printing, and war, the latter due in part to growing income inequality in both developed and emerging market economies. After speaking at the Ira Sohn Conference yesterday, he talked to Bloomberg’s Carol Massar.

Skip to about 10:30 to hear Faber comment on what disturbs him the most these days:

For my taste, in front of luxury hotels there are far too many Ferraris, Maseratis, Bentleys. That is not a good sign. You should see depression when conditions are depressed. I see a boom everywhere, except for the working class and except for the lower middle class. But among the well to do people, the wealth that is floating around and the prices you pay for high end properties is incredible, and I think that will come to an end, and a lot of people will lose a lot of money … This gives me a bad feeling because I’ve seen so many emerging economies when they were booming, that was the time to get out.

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More Questions for Ben Bernanke

On April 27, 2011, in Commodities, Currencies, Economy, Stocks, by Tim

Those invited to the first-of-its-kind press conference following the conclusion of today’s FOMC (Federal Open Market Committee) meeting should not be at a loss for ideas about what to ask, as should be clear from the collection of links below.

> What Would You Ask Bernanke? – WSJ
> Questions for Bernanke – North, Lew Rockwell
> 10 Questions for Chairman Bernanke – Global Macro Monitor
> Five Questions for Bernanke – Future of Capitalism
> 20 Questions For Ben Bernanke – Zero Hedge
> 5 tough questions for Ben Bernanke – MarketWatch
> Six Questions for Fed Chairman Ben Bernanke – Mother Jones
> One Question for Bernanke, Three Possible Answers – CNBC
> Sixteen Questions for Dr. Bernanke’s Press Conference – Aleph Blog
> Suggested Questions for Bernanke Run Gamut But Inflation Top Topic – iMarketNews
> Ahead of the Bernanke press conference, questions and worries – Seattle Times
> Questions for Bernanke Should Focus on Fed Efforts During Financial Crisis – FDL
> “Why Was the Bank of Libya Bailed Out?” and Other Questions – Washington’s Blog
> #FedSpeaks: Crowdsourcing Questions to Bernanke – Dylan Ratigan
> Your questions for Fed Chairman Bernanke – MarketWatch
> Some Questions for Bernanke’s Critics – Seeking Alpha
> Economists, Readers Offer Questions for Bernanke – WSJ
> Questions, and answers, for Bernanke – MarketWatch
> Do You Have a Question for Mr. Bernanke? – NY Times
> Questions For Ben – Market Ticker

It’s a pretty safe bet that none of the questions on the list provided by Zero Hedge will be asked, though, you’d think that someone should step up and asking something like this:

1. The rescue packages in 2008-2009 were all aimed at restoring CONFIDENCE to the financial system. Yet from 2001 to 2011 the DXY is down 41.5% and gold is up 473%. Does this not equate to a loss of confidence in the US monetary system? If not how would you explain this phenomena?

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