The Mess That Greenspan Made - Part 12


Yeah, big Fed meeting today, but there’s this too…

Sleep overcame me before getting too far into last night’s Las Vegas GOP debate on DVR (where the 30-second advance is extremely handy) but, according to most of the pundits, nothing much changed – it’s still Trump, Cruz, and Rubio followed by a cast of characters that includes one-time front-runner Jeb!

I guess most or all of the single-digit crowd will see it through until after the voting starts, hoping for a big stumble between now and then by you-know-who, but the handwriting is on the wall, this exchange via Vox summing things up rather nicely.

Trump: You’re a tough guy, Jeb. I know.

Bush: You’re never going to be president of the United States by insulting your way…

Trump: I’m at 42, and you’re at 3. So far I’m doing better. You started over here [gestures next to himself in the center of the stage]. You’re moving over further and further. Pretty soon you’re going to be off the end.

Wednesday Morning Links

Junk bond ETFs hit record trading levels – FT
Asset Managers Follow Junk Bond Rebound – WSJ
The Fed rate hike … in 2 minutes – CNN/Money
Fed poised to finally lift rates — it hopes – USA Today
Steadily firming U.S. inflation supports Fed rate hike – Reuters
Preparing to Raise Rates, Fed Underestimates Benefits of More Inflation – NY Times
A Guide to 2016: When Everything That Can Go Wrong, Does Go Wrong – Zero Hedge
America’s Top General Says We’re Not Ready to Defeat ISIS – Fiscal Times
Rand Paul Is the Only Candidate Who Doesn’t Want to Start World War III –
The Republican Debate in Vegas: A Good Night for Cruz, Rubio, and Paul – Atlantic
The Fifth Republican Debate Ends In A Nine-Way Draw – FiveThirtyEight
3 winners and 3 losers from the fifth Republican debate – Vox
GOP Insiders: Rubio shined in Vegas – Politico

3 things to know before the open – CNN/Money
Great Graphic: US Equities in December – Marc to Market
Battered, Apologetic and Still Pitching Their Hedge Funds – NY Times
The Major Difference Between Wall Street and a Casino – Reformed Broker
Why Volatility Shouldn’t Scare You Out of the Stock Market – Fiscal Times
Warm Weather Crushes Natural Gas, Prices Fall To Nearly 17-Year Low – Barron’s
Could closure of Third Avenue Fund pop the post-crisis asset bubble? – Telegraph
When the Fed hikes interest rates, stocks do surprisingly well – MarketWatch
Gold prices rise ahead of Fed rate hike decision – Reuters
Rising Inflation Could Be Game Changer For Gold In 2016 – Kitco

Stiglitz’s Sticky Prices – Project Syndicate
A Long Term Look at Inflation – Advisor Perspectives
UK unemployment rate falls to 5.2%, lowest in nearly 10 years – BBC
China slowdown sinks Asia sentiment to four-year low – Reuters
French Business Grinds to Halt as Services Hit by Terror Attacks – Bloomberg
Beijing’s Air Is So Bad, the Sale of Bottled Canadian Mountain Air Is Soaring – Vice News
Private Profit with Public Guarantee: The Real Issue with Fannie and Freddie – CEPR
Bill Gross: Central bank ‘casinos’ to run out of luck – CNBC
Did “Tight” Fed Policy Cause the Financial Crisis? – Mises


The Hydra Headed Inflation Monster

More on the subject of inflation, or the lack thereof, ahead of tomorrow’s big Fed decision to hike interest rates for the first time in nearly a decade comes via this item at the Wall Street Journal where the graphic below is supplied along with commentary detailing how hard it is for the world’s smartest economists to figure out exactly what is going on with consumer prices in a world where money is freely printed and central banks perpetually fall short (on the low side) of achieving their 2 percent inflation goal.

Important topics omitted from the discussion include central bankers irrational fear of deflation (as detailed in a recent report from the BIS), any mention of the overall inflation rate of basically zero when the nation’s money was linked to something other than “confidence in the government to do the right thing” (i.e., up until shortly after the Federal Reserve was founded in 1913), and the nature of money (sound or otherwise).

Tuesday Morning Links

The Fed at the Brink – WSJ
Why Very Low Interest Rates May Stick Around – NY Times
Everything you need to understand the Fed’s interest rate hike – Quartz
High-Yield Risks Shed Doubts on Strength of U.S. Economy – NY Times
The Market Humbles Junk Bond Fund Managers – Forbes
The Battle for Civilization Is Happening in Paris – Politico
Paris climate pact: A good moment for the planet – LA Times
In Paris, Climate Change Alarmists Con Everyone, Including Themselves – The Federalist
Emory Students Want Professors Evaluated on Microaggressions They Commit –
Trump dominates new national poll with 27-point lead – USA Today
Compared to Trump, Hillary can’t be that bad. Can she? – The Spectator
Would Cruz be any Better than Trump? – Real Clear Politics
Donald does Vegas – Politico

4 things to know before the open – CNN/Money
This is what to do if you own high-yield bonds – MarketWatch
Why 100% of your investment portfolio should be in stocks – Bloomberg
Crude oil gains, trying for a second up day in a row – MarketWatch
This Is How The Credit Crisis Spreads To Stocks – Zero Hedge
December 16, 2015—–When The End Of The Bubble Begins – Contra Corner
Yuan Posts Longest Losing Run Since June as PBOC Support Wanes – Bloomberg
Gold rises as dollar retreats, eyes likely Fed hike – Reuters
The PBOC Was Buying Gold in London In The Nineties – BullionStar

The Revolt of the Anxious Class – Robert Reich
A Brief History of U.S. Inflation Since 1775 – WSJ
Here’s an amazingly simple way to cut poverty – Vox
More than half of millennials have less than $1,000 – MarketWatch
The massive bubble in US dollars is so obvious in this country – Sovereign Man
As Western Lifestyles Are Spreading to Poorer Countries, So Is Cancer – Vice News
A restaurant in China billed its customers for providing “clean air” – Quartz
Millennials are about to kick-start a home-buying boom – MarketWatch
With Fed Set to Lift Interest Rates, the Little Guy Feels Anxious – NY Times
What a Fed rate hike means for you – CNN/Money


Maybe 2% Inflation Isn’t Ideal

Among the many rate-hike-related themes appearing in the financial media this week is what some are calling the Federal Reserve’s “Inflation Conundrum”, an homage to a similar stumping of the central bank more than a decade ago when short-term rates were raised but long-term rates didn’t budge, that is, until the yield curve inverted and, voila!, financial crisis and recession ensued when another asset bubble burst.

The WSJ weighs in with The Mystery of Missing Inflation Weighs on Fed Rate Move ($) today.

Fed officials face a troubling question: Jobs are on track, but inflation isn’t behaving as predicted and they don’t know why. Unemployment has fallen to 5%, close to estimates of full employment, but inflation is stuck at less than 1%, well below the Fed’s 2% target.

Central bank officials predict inflation will approach their target in 2016. The trouble is they have made the same prediction for the past four years. If the Fed is again fooled, it may find it raised rates too soon, risking recession.

Fed officials also don’t know why they target a 2 percent inflation rate rather than say, 1 percent or 3 percent or some other number, a question that is perhaps worth answering first, before they attempt any further investigation into why they’re not meeting this target.

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