The Mess That Greenspan Made - Part 32

Inflation and the Fed

They’ll probably be writing about this in the next update to the Federal Reserve policy manual as it has become increasingly clear that current Fed policies that have strengthened the dollar (i.e., talking about raising interest rates) have caused the government’s measure of inflation to move lower as shown below via this story at Bloomberg, all of which makes the case for actually raising rates (in the minds of economists) much more difficult.

Recall that there is a strong inverse correlation between the trade weighted dollar and both import prices and oil prices, so, the more the Fed talks about higher rates, the stronger the dollar gets, and the more difficult it becomes for the central bank to hit its inflation target of 2 percent, a target for which there is virtually no justification.

Monday Morning Links

MUST READS
Russia seizes initiative in Syria – Reuters
Putin calls U.S. support for rebels in Syria illegal – Washington Post
Victorious Catalan separatists claim mandate to break with Spain – Reuters
The More Yellen Talks Up Inflation, the Less Traders Believe Her – Bloomberg
GDP Growth Of 3.9 % Shows That We’re Measuring It Wrong – Forbes
The Money Spent Selling Sugar to Americans Is Staggering – Atlantic
Lunch With Shkreli: What We Should Learn From Pharma’s Latest Monster – Forbes
New Daily Show Host Admits to Political “Romance” with Rand Paul – reason.com
Why the GOP is the true party of ‘free stuff’ – The Week
Stop giving Ben Carson a pass on issues – The Hill
Ted Cruz’s big moment – Politico
New World Disorder – CBB

MARKETS/INVESTING
Stock Futures Mired in the Red – MarketWatch
This is When Bonds Go Kaboom! – Wolf Street
Investors to Washington: You’re confusing us – CNN/Money
Valuations Not Only Mean-Revert; They Mean-Invert – Hussman Funds
China Industrial Profits Fall Most Since 2011 as Growth Ebbs – Bloomberg
Cash beats stocks, bonds for first time in 25 years – MarketWatch
Emerging Markets Are Facing a Big Foreign FX Debt Bill – Bloomberg
Gold falls as U.S. rate outlook weighs, platinum at 6-1/2 year low – Reuters
Swiss Regulator Names Seven Banks in Precious Metals Probe – Bloomberg
Buy Gold While You Still Can! – Peak Prosperity

ECONOMY/WORLD/HOUSING/BANKING
Average American Household’s Income by Age – Motley Fool
Fourth Turning: Crisis of Trust – Part 3 – Burning Platform
How the refugee crisis makes Europe feel – Quartz
The Economic importance of China – Econbrowser
The Top U.S. Financial Diplomat’s Upbeat View on China – WSJ
Why a China Slowdown Is by itself Little Threat to the U.S. Economy – Delong
Q&A: Zillow Economist Says Fed Move Could Cool Hot Housing Markets – WSJ
QE Infinity Calls Continue: “QE4 Will Be Their Next Move” – Zero Hedge
How the Fed could get radical as a seasonal rally lines up – MarketWatch
What if the Fed is wrong? – FT

 

Yellen: Agonizing to Watch

In a speech at the University of Massachesetts last night, Federal Reserve Chair Janet Yellen said that the prospects for the U.S. economy “generally remain solid” and that the central bank is “on track” to raise interest rates in the months ahead.

Then dehydration is said to have caught up with her and she cut her speech short:

She received medical attention then resumed her schedule as the stock market ripped higher, traders concluding that she was just fake vomiting, something that Stephen Colbert popularized on his Comedy Central show and brought to CBS with Emily Blunt the other day.

Friday Morning Links

MUST READS
Yellen: Fed “on track” to raise rates – BBC
Yellen sets stage for interest rate hike – MarketWatch
Janet Yellen Says Fed Is Likely to Raise Interest Rates This Year – NY Times
Fed’s Yellen gets medical attention after struggling with speech – Reuters
SocGen’s Edwards: Recession Will Force Fed to Replace ZIRP With NIRP – Newsmax
By This Measure, the U.S. has the 2nd Highest National Debt – Visual Capitalist
This is the best time to borrow money — in all of history – Washington Post
Junipero Serra was a brutal colonialist. Why did Pope Francis make him a saint? – Vox
Donald Trump’s slide in the polls is beginning to look real – Washington Post
The strategy behind Rubio’s Trump feud – Politico
Has America really lost its greatness? – The Week
What Is Taking Joe Biden So Long? – Slate

MARKETS/INVESTING
Futures jump as Yellen eases fears of slowing growth – Reuters
Japan stocks climb after Abe stresses economic pledge – MarketWatch
China’s Stocks Fall as Capital Outflows Hit Record in August – Bloomberg
3 Things JPMorgan Chase’s CEO Wants Investors to Know – Motley Fool
European stocks rise ahead of VW chief exec announcement – AP
12 stocks get crushed for good reason – USA Today
The Emerging-Markets Bellwether From Peoria – Bloomberg
Gold falls 1 pct as Yellen speech on rates boosts dollar – Reuters
IMF Data: Kazakhstan, Russia Buy More Gold as Mexico Cuts – Bloomberg
It’s Time To Accumulate Future Gold Mining Tenbaggers – GoldSilverWorlds

ECONOMY/WORLD/HOUSING/BANKING
Economics Is Too Important to Be Left to Economists – Robert Reich
More Declines in Durable Goods; Economists Hardest Hit – Alhambra Partners
Wealthy Reap the Most as Revenue Rush Triggers U.S. State Rebates – Bloomberg
China to Announce Cap-and-Trade Program to Limit Emissio – NY Times
Japan effectively downgrades view of economy – MarketWatch
In Brazil’s Market Meltdown, a Wave of Panic — Then Silence – Bloomberg
JPMorgan Chase: FHA Loans Are Government Backed Subprime Loans – MFI Miami
Bubble State Home Prices Rising While Income Declines (Juiced!) – Confounded Interest
Goldman Warns Central Bankers Face Limits on Unorthodox Policies – Bloomberg
Fed blowing its chance to raise rates: Economist – CNBC

 

Fed opens Pandora’s box

There’s been lots of discussion about monetary policy since last Thursday’s no-decision by the Fed on interest rates and Mike Baele, senior portfolio manager at US Bank Private Client Reserve, wonders what the central bank is thinking with its new focus on the global economy and foreign stock markets, all of which seems to have confused investors.

See also Bill Gross’ latest commentary in which he urges the Fed to move:

Near term pain? Yes. Long term gain? Almost certainly. Get off zero now!

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