Captain Ben Banana And His Monkeys

March 14th, 2012
in Gary's blogging, Special Post

I guess referring to Dr. Ben Bernanke as something less than a Homosapien is disingenuous, but I still want to make a strong statement disagreeing with most of the Fed's decisions of late. This would also include the Keynesian politicians who continue to believe that MY hard earned money should be shared with uneducated and underachiever malcontents happily sitting in the shade playing checkers.   Here is a very interesting view and outlining a very sinister issue if it comes to fruition.

Will Interest Rates jump higher?

"It could happen, as you will see on today's weekly chart of the 10 year yields .... symbol: $TNX.  So, we have a sideways trading range breaking above a 4 month resistance line.  Unless Bernanke can contain this move within the next few days, he will lose control.

Such an event would be bad for the economy because higher yields means higher interest rates for borrowers.    Yes, higher interest rates are good for banks ... that is unless they get too high and choke off consumer borrowing and spending.   Bottom line:  It is now time to keep an eye on interest rates in the near term.

And while you are at it ... keep an eye on the 30 year yields ... symbol: $TYX.    The TYX (which also relates to mortgage rates) is jumping higher and 34.62 and 34.75 are important numbers to watch. 
Why?   Because if the 30 year yields continue to rise after that level, they can go a lot higher with Bernanke losing control.

While I have never been a fan of the QE's and other questionable financial games of the Fed, Avery Goodman has taken a shot at them too.

QE, Inflation, And The Case For Precious Metals
"What more brilliant scheme could the Federal Reserve come up with? First, print up wads of money out of thin air to buy bonds. Second, suck in an equal amount of money from the rest of the economy. Third, place that sucked-in money into reserve "term deposits," making certain that not one dime ever reaches the pockets of the masses. The end result? No inflation, and all money ends up in the electronic pocketbooks of Federal Reserve primary dealers."
The calls for abolishing the Federal Reserve Bank have been many, for some Congressional control in the future is a must. Many, including myself, feel the meddling of Government Politicians and the Central bank have created more problems than they think have been corrected. O.K. Keynesian Financial theory's may work when an outcome of a future robust financial recovery is assured, but this recovery has been in doubt from the beginning. Many say we have never really left the recession of 2008/2009.

Adam Alveraz feels the current deeds of the Fed's have "opened the door and caused even more problems than it has solved." Agreed.

Why The Federal Reserve Needs To Get Out Now

"Aside from the mansion and sport's car, near the top on most people's list of dreams would probably be a raise from the boss. However, if the hike in pay provided only a slight reprieve from a period of relentless inflation, that raise wouldn't exactly be reason to go out and buy a bottle of champagne to celebrate.

Such has been the case with the Federal Reserve's well acknowledged plans to keep interest rates at record lows until late 2014. On the outside the move looked promising as it gave some, especially depressed homeowners, more time to go out and refinance. However, refinancing does little when the drop in the monthly mortgage payment is sucked back up by the grocery bill.

As good as it initially is to have a drop in rates, an extended reduction by the Fed has opened the door and caused even more problems than it has solved. For many, the signs of the Fed's work have been quite noticeable. To a rise in everything from grocery bills to gas to a currency that currently is valued at less than 80% of face value, the work of the Federal Reserve is in clear view. It's asking them to now back up that has been the problem.

For now, the Federal Reserve wants to act like the savior for both markets and citizens. However, if it doesn't figure out soon it has more the makings of an economic adversary, dour results loom around the corner."

Joel Kruger feels the same way in that current attempts to say the right thing have had the opposite effect.

Latest Fed Rate Decision Sending Wrong Message to Markets
By Joel Kruger, Technical Strategist

  • FED decision a little too easy on markets
  • Bernanke and Co. should have removed 2014 language
  • US equity markets are very well bid and perhaps too well bid
  • Longer-term inflationary threat should now be addressed
  • UK employment softer but fails to factor
  • Japan earthquake and tsunami warning

Today is a very tough day for me as an analyst and although I am delighted to see that markets are feeling more optimistic post Fed, with risk correlated assets well bid, I am still quite perplexed with the price action. The Fed continues to do everything it can to keep investors feeling confident, and while we can understand the motivation behind this strategy, perhaps yesterday’s decision was a little too considerate. The US economy has been showing some very clear signs of recovery, and given this, we feel that it is now time for the Fed to start to at a very minimum signal a reversal of policy. Some would argue that the lack of reference to a third round of quantitative easing was in fact the Fed’s way of starting to signal a reversal, but we feel that the possibility for QE3 in light of recent economic data was already highly unlikely and not expected.

I mentioned before that the USD and the markets have in the past moved in opposite directions. This week they have moved together in tandem, why? A weak US dollar has always benefited the markets and I am having difficulty seeing where this wouldn't be true today.

EUR/USD Mar. 14 – Slide Continues After Relative Bernanke Bullishness

Euro dollar continues to slide in lower range, in a downtrend channel. The Federal Reserve didn’t change its policy and upped its tone regarding employment and inflation. Bernanke will continue moving markets in a speech later in the day. In Europe, a final seal of approval is expected for Greece’s second bailout program, a few days after the PSI was done and before the deadline to pay bondholders.

Here’s an update on technical fundamentals and what’s going on in the markets.

Read the rest of the article EUR/USD Mar. 14 – Slide Continues After Relative Bernanke Bullishness

Written by Gary


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