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Misunderstanding the Fed

Here’s an entertaining clip of Bill Fleckenstein on CNBC in which Futures Now host Jackie DeAngelis begins by pointing out that the continuing market rise is evidence bearish investors simply don’t understand Federal Reserve policy.

Fleckenstein notes, “If you want to pursue idiots like the Fed doing crazy policies, and if you think you can get out in time, go for it. I don’t want to try to do that … When markets decline, how fast will it be taken away from you?” after which there is an awkward silence.

Too Low for Too Long, Round 2

Based on the results of this survey as reported at the Wall Street Journal Economics blog and depicted below, large numbers of U.S. economists are prepping their 2015 (maybe 2016) “I told you so” commentaries as they relate to the Federal Reserve’s handling of interest rates.

I’m not sure if this is round two or three (i.e., I wasn’t really paying attention back in the early-1990s when Greenspan held rates pretty low for a few years) but, either way, it’s kind of disconcerting to see a plethora of economists (who, by the way, are not known for being the sharpest tools in the shed as far as predicting the future) already thinking the Fed is making the same mistake (one that they’ve never acknowledged) once again.

Stocks or Bonds: Which Has It Right?

Much has been made about the rather disturbing trend this year for the price of just about every asset class to go up. As shown below, stocks and bonds normally go in opposite directions over long stretches of time, however, that’s not been the case this year.

In fact, 2014 has, so far, proved to be quite the outlier in many respects for how stock and bond prices have moved for reasons that should be clear below.


One More Thing to Worry About

The innocuous looking graphic below from this WSJ story ($) has more than a few people worrying a little more today than they did yesterday about what might go wrong in the financial system as we bear down on the worst two months of the year for equities.

According to the report,  the repo market is “a critical part of the plumbing that keeps money flowing”, enabling “hedge funds, investment banks and other financial firms to borrow and lend short-term funds, often overnight” and has recently seen some lenders pull back due to new regulations.

A less sanguine take can be found in this item at Quartz that characterizes repos thusly:

The bottom line is that repos are leverage. They are a way for banks to use borrowed money, instead of their own, to take positions in the market. When times are good this works pretty well. But in a crisis, things get bad quickly.

Just in case you needed it, that’s one more thing you can worry about.

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