Fed delays bond tapering

The Federal Reserve has decided against reducing its stimulus for the U.S. economy, saying it will maintain the pace of its bond purchases because it thinks the economy still needs the support.

The Fed says it decided to hold off on slowing the $85 billion a month in bond purchases to see more conclusive evidence that the recovery will be sustained.

In a statement after its meeting, the Fed says that the economy is growing moderately and that some indicators of labor market conditions have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth. Read more >>

Peter Schiff on Gold and Silver: Load the Boat and Back Up the Truck

Greg Hunter’s USAWatchdog.com
For anyone who sold physical gold in the current precious metal downturn, money manager Peter Schiff says, “There’s going to be a big problem because the gold they sold on the way down isn’t going to be available on the way back up because the people who own it aren’t going to sell it at any price.

This is the time to load the boat, to back up the truck.”  Schiff is a longtime advocate of precious metals and has taken much criticism in this downturn.  Schiff answers his critics by saying, “The people who are always making fun of me every time there is a pullback are the ones that never bought gold in the first place.

Even though it’s pulled back, it’s still a lot higher than it was when they first started laughing at me for buying gold.”  Talk of a new Fed Chairman to replace Mr. Bernanke will only be bullish for the gold price.

Schiff predicts, “If it’s solely based on which Fed Chairman is the most bullish for gold and silver, I would say that would be Janet Yellen.  No matter who’s put in at the Fed, they are going to keep printing because that’s all they can do.”  Schiff warns, “They’re going to keep printing until we have a currency crisis . . . and that is the most bullish environment for gold. Read more >>

Gold Surges To Its Best Day In 13 Months

With gold now up an impressive 13.1% from its post-Bernanke lows 3 weeks ago (notably more than the +8.8% in US equities), it appears the physical demand is quietly catching up to the paper supply. As we noted here, shorts covered around 11% of their positions in the last week and we suspect today's surge is yet more covering as the massively over-crowded paper-short gold position starts to unwind.

Of course, this surge is disappointing to many (including China we suspect) as the 'transitory' end of the price beatdown means we can buy less physical (and take immediate possession) now than at the June lows of $1180. With gold testing its 50DMA for the first time since February, we suspect the momo crowd will be quick to jump ship should we push on through. Read more >>

Economist Caution: Prepare For 'Massive Wealth Destruction'

That’s exactly what many well-respected economists, billionaires, and noted authors are telling you to do — experts such as Marc Faber, Peter Schiff, Donald Trump, and Robert Wiedemer. According to them, we are on the verge of another recession, and this one will be far worse than what we experienced during the last financial crisis.

Marc Faber, the noted Swiss economist and investor, has voiced his concerns for the U.S. economy numerous times during recent media appearances, stating, “I think somewhere down the line we will have a massive wealth destruction. I would say that well-to-do people may lose up to 50 percent of their total wealth.”

When he was asked what sort of odds he put on a global recession happening, the economist famous for his ominous predictions quickly answered . . . “100 percent.”

Faber points out that this bleak outlook stems directly from Federal Reserve Chairman Ben Bernanke’s policy decisions, and the continuous printing of new money, referred to as “quantitative easing” in the media.

Faber’s pessimism is matched by well-respected economist and investor Peter Schiff, the CEO of Euro Pacific Capital. Schiff remarks that the stock market collapse we experienced in 2008 “wasn’t the real crash. The real crash is coming.” Read more >>

For First Time Majority Finds President Untrustworthy

Whatever the deteriorating economy could not achieve (courtesy of Ben Bernanke's relentless bubble blowing and pumping of the S&P 500-driven "wealth effect" distraction) for the past four years, one NSA whistleblower succeeded in a few short days, when earlier today, CNN - hardly a media known for its criticism of the administration - released a new poll according to which not only did Obama's approval rating drop by 8% in the past month, "one of the sharpest, fastest plunges in his presidency" to 45% from 53% (the first time the majority had a negative opinion of the president), not only did the majority find Obama to not be honest and trustworthy for the first time ever in his presidency, but Obama's support with one of his core constituencies - young Americans under 30 - imploded, plunging by 17 points. CNN adds:

"That's particularly discouraging heading into 2014 because Democrats have felt they have a lock on the youth vote after the 2012 elections. "The drop in Obama's support is fueled by a dramatic 17-point decline over the past month among people under 30, who, along with black Americans, had been the most loyal part of the Obama coalition," CNN Polling Director Keating Holland said."

Ted Turner's news network adds the following:

The president also dropped 10 points among independent voters, from 47 percent last month to 37 percent. Obama's disapproval among independents jumped 12 points to 61 percent. Again, more bad news for Democrats because those independents are especially important in mid-term elections in which older, more conservative Americans predominate.

The network pointed to several major scandals as evidence for the drop.

"The White House has been under siege over telephone and Internet surveillance, the Internal Revenue Service's targeting of conservative groups, its handling of the terror attack on the U.S. consular post in Benghazi, Libya, and the Justice Department's collecting journalists' phone records as part of the government's investigation into leaks of classified information," CNN reported.

"It is clear that revelations about NSA surveillance programs have damaged Obama's standing with the public, although older controversies like the IRS matter may have begun to take their toll as well," Holland told the network. Read more >>

No Food Inflation? Take a 2nd Look

One of the great mysteries of the whole easing era — the past five years of unprecedented intervention and activism orchestrated by Fed Chairman Ben Bernanke — is that it hasn't led to rampant inflation...at least not yet.

While economists routinely strip out food and fuel when they look at pricing data to derive what they call a "core" figure, even the all-in figure has been eerily benign lately. The March consumer price index, or CPI, just released this morning, showed a 0.2% drop. But within the data, food prices remained flat, while the prior report showed a 1.6% increase in the food index over the past 12 months.

This "paltry" increase in food prices got Nick Colas, chief market strategist at ConvergEx Group, thinking. What if the items in the government's basket were different than what real consumers actually buy? As Colas explains in the attached video, so-called "shopping cart inflation" is anything but benign. "The things that people most commonly shop for are increasing in price much more quickly than that CPI basket inflation number we're used to seeing," says Colas, singling out the spike in staples such as lettuce (+24%) and apples (+11%) in a recent note to clients.

Part of the problem, he says, is due to the drought last summer. While that might seem like old news at this point, Colas says it will "have a very long shadow" on food prices this year, as the ripple effect from costlier corn and grains makes its way through animal feed and on to meat prices. All in, Colas sees the food component rising 3% to 4% this year, but warns that what people eat will have a big impact on how much they spend. Read more >>

More Than Dozen States Push For Gold as Legal Tender

Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.
Arizona is poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.

The measures backed by the limited-government Tea Party movement are mostly symbolic -- you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.

“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”

Bernanke has pushed interest rates to near zero since the 18-month recession that began in December 2007. The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth. Read more >>

Cuts unlikely to deliver promised budget savings

On paper, there's one thing to like about the ugly spending cuts due to kick in on Friday: $85 billion in budget savings at a time when Washington continues to bleed red ink. In reality, the so-called "sequester" is likely to yield less than half that much in the short term.

In part, that has to do with the complex way the government handles its money. But it also reflects the probability that the spending cuts will hurt the economy, which in turn will lower tax revenue and drive up the costs of social safety-net programs like unemployment insurance.

On top of that, federal agencies - especially the Pentagon - will have to pay penalties to suppliers if the sequester forced them to cancel contracts.

Add it up, and the actual savings could be a lot less than budget hawks envision. Read more >>

Fed Pushes Into Uncharted Territory as Assets Hit $3 Trillion

Ben Bernanke, Vampire Chairman (Photo credit: DonkeyHotey)

Federal Reserve Chairman Ben S. Bernanke’s unprecedented bond buying pushed the Fed’s balance sheet to a record $3 trillion....

The Fed is purchasing $85 billion of securities every month, using the full force of its balance sheet to stoke the economic recovery. The central bank began $40 billion in monthly purchases of mortgage-backed securities in September and added $45 billion in Treasury securities to that pace this month.

“We’re in uncharted territory,” said Julia Coronado, chief economist for North America at BNP Paribas SA in New York, and a former Fed economist. Even as “the easy money will flow through financial markets and into the real economy at some point and lift us to a better growth trajectory,” the U.S. faces “a lot of risks,” she said. Read more >>

Where The Jobs Are: "55 And Older"

In December the American jobs gerontocracy continued its relentless course, and as the two charts below summarize since Obama's first term, some 2.7 million jobs in the 16-55 year old category have been lost. The "offset": 4 million jobs for Americans between 55 and 69.

For all those young people graduating from college (with $150,000 in student loans) who are unable to get a job, here is our advice: tell your parents, and grandparents, to retire already. Oh wait, they can't because Bernanke destroyed their savings. Oops - better luck next time. Read more >>

16 Critical Economic Issues That Obama And Romney Avoided During The Debate

But the reality is that both candidates were telling the American people what they want to hear.  If either Obama or Romney told the truth about what we are facing they would lose votes, and in a race this tight both of them really want to avoid doing that.  Obama and Romney both desperately want to win this election, and the words that are coming out of their mouths have been carefully crafted to appeal to the "undecided voters" in the swing states.  If you actually believe that they can deliver on everything that they are promising, then you must not have been paying much attention to U.S. politics over the past several decades.

Perhaps the biggest failure on Wednesday night was debate moderator Jim Lehrer of PBS.  His questions were about as far from "hard hitting" as you could get.

The hour and a half debate was almost entirely about the economy, and yet almost all of the critical economic issues were ignored.

Yes, Obama and Romney have slight differences when it comes to tax rates and regulations, but those small differences are not going to do much to change the direction of this country one way or another.

Meanwhile, there were some really huge issues about the economy that were not addressed at all last night....

1 - In an hour and a half debate about the economy, the Federal Reserve was not mentioned a single time.

2 - In an hour and a half debate about the economy, Ben Bernanke was not mentioned a single time.

3 - In an hour and a half debate about the economy, quantitative easing was not mentioned a single time.

4 - In an hour and a half debate about the economy, the term "derivatives" was not used a single time.  Considering the fact that derivatives could bring down our financial system at any moment, this is an issue that should be talked about.

5 - In an hour and a half debate about the economy, there was no mention of the millions of jobs that have been shipped out of the country.  Considering the fact that both Obama and Romney have played a role in this, it is probably a topic they both want to avoid.  Overall, the United States has lost more than 56,000 manufacturing facilities since 2001. Read more >>

Stagflation in Extremis & The Explosive Rise of Gold

Stagflation is where economic growth slows, unemployment is high and prices rise. Stagflation’s appearance in the 1970s was like an outbreak of three-headed children. It wasn’t supposed to happen. Prevailing wisdom - an oxymoron among economists - held that high employment and rising prices were economic handmaidens; and that, conversely, slowing economies and inflation were mutually exclusive.

In the 1970s, for the first time in capitalism’s history stagflation appeared, i.e. prices rose and economic growth stagnated; and, while economists would search for reasons to explain the apparently inexplicable, it was only because they avoided the obvious that they did not find the answer.

In August 1971, President Nixon upon the advice of Milton Friedman - the same Milton Friedman who erroneously taught Ben Bernanke economic contractions can be reversed by monetary expansion - ended the convertibility of the US dollar to gold.

The consequences of cutting ties between paper money and gold were not what Friedman expected. Friedman believed - belief is the operant word here - that ‘free-market forces’ would bring floating currencies into orderly market-driven valuations. Friedman was wrong - again. Read more >>

The Trouble with Printing Money

For a while now, I have been expecting a coordinated, global central bank action that would seek to print more money out of thin air, or "QE" (quantitative easing), as it is now called.  Now we have two of the most important central banks, that of the U.S. (the Federal Reserve) and in Europe (the ECB) having committed to open-ended, limitless QE.

In Part I of this report, we analyze the actions themselves, and then in Part II we discuss the implications to individuals and those with responsibilities to manage money.

The most recent announcement came from the Fed, and it had these features:

The creation of $40 billion a month out of thin air to purchase agency mortgage-backed securities (MBS).

The continuation of Operation Twist, which uses short-term Treasury bills and notes on its books to purchase long-term Treasury paper (that's 10- and 30- year bonds).

When MBS payments come in – the Fed holds over $840 billion dollars of those – they will buy still more MBS paper ('rolling' the payments into new MBS, as it were).

Taken together, the Fed will expand its balance sheet holdings of long-term assets (i.e., "debt") by ~$85 billion per month through the end of the year...but wait!  There's more...

This time, unlike the prior two QE efforts, the actions will be taken without any pre-defined limit.  
QE will continue until the labor market improves "substantially," whatever that means.  But wait...there's even more!

If deemed necessary, the Fed will "purchase additional assets" and "employ other policy tools."

As if all that weren't enough, for good measure, the Fed committed to a six-month extension of the 0.0% to 0.25% target range for the Fed Funds rate until at least mid 2015.

Read more >>

Faber: Own Gold – “Don’t Store It In The U.S., The Fed Will Take It Away"

Marc Faber, one of the few analysts, to have predicted the current crisis correctly and to have protected his clients in the process, remains very bullish on gold. In another excellent Bloomberg interview, Faber said that “the trend for gold prices will be steady but the trend for the dollar and other currencies will be down. So in other words gold in dollar terms will trend higher.”

“How high it will go, you will have to call Mr Bernanke and at the Fed there are other people who actually make Mr Bernanke look like a hawk and so they are going to print money.” Faber is on record as to the importance of owning physical gold and he again warned about the importance of owning gold but not storing it in the U.S.

“You ought to own some gold but don’t store it in the U.S., the Fed will take it away from you one day,” Faber astutely noted. Read more >>

Jobless claims increased to 382,000

The job market is cooling as a global slowdown and looming U.S. tax policy changes keep businesses hesitant about hiring. Persistent unemployment, a “grave concern” according to Federal Reserve Chairman Ben S. Bernanke, is a focus for policy makers today as they meet to consider whether new steps are needed to boost the world’s biggest economy.

“The labor market continues to be disappointing,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who projected claims would rise to 380,000. “We’d like to see the hiring side pick up. Companies are very cautious given all the uncertainty.” Read more >>

1.3 Million People Fall Off Extended Benefits In Past Year

One month of positive economic surprises since the last FOMC may be all we get, now that a "majority" of FOMC members suddenly need a rapid deterioration in economic data to usher in the NEWER, MORE OPEN-ENDED QE.

Initial claims was happy to comply: after posting several weeks in a row of "beats", claims has finally resumed "missing", as well as rising, posting an increase from last week's upward revised 368K print to 372K this week, worse than the expected improvement to 365K, and to a one month high. And with continuing claims missing too, the real story continues to be the steep fall off in those on extended benefits and EUC, which declined by a total of 48K in the past week, and down by about half a million in the last few months, and lower by 1.3 million in the past year.

This is 1.3 million fewer consumers who can recycle Uncle Sam's dole back into the economy and iGadgets. The question is whether this minimal miss is enough to justify the FOMC doves' fears the much more QE is needed. Read more >>

Market Savior? Stocks Might Be 50% Lower Without Fed

A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the US central bank.

Theoretically, the S&P 500 would be more than 50 percent lower—at the 600 level—if the bullish price action preceding Fed announcements was excluded, the study showed. Posted on the New York Fed’s web site Wednesday, the study sought out to explain why equities receive such a high premium over less risky assets such as bonds.

What they found was that the Federal Reserve has had an outsized impact on equities relative to other asset classes. For example, the market has a tendency to rise in the 24-hour period before the release of the Fed’s statement on interest rates and the economy, presumably on expectations Chairman Ben Bernanke and his predecessor, Alan Greenspan, would discuss or implement a stimulus measure to lift asset prices. Read more >>

60K drop off unemployment claims in past week; 1.260 million in past year

Initial Claims did precisely as expected: it improved even as it deteriorated: why - the media headline will blast: "Initial Claims Decline by 6K" because last week's number of 387K was just revised to 392K.

That what actually happened was a miss of baseline expectations, in that claims would drop to 385K is irrelevant. Just as it is irrelevant that next week, today's 386K number will be revised to 390K. And the media manipulation song and dance revisions will continue. More importantly, and continuing the 99 week cliff issue, 60,000 people dropped off initial and extended claims in the past week. In other words, 1.260 million people have fallen off extended benefits in the past year: people who no longer collect any form of unemployment benefits. Surely they have all "found jobs." Read more >>

75% Jobs Added by U.S. Multinationals Were Overseas

 Michael Raphael (Photo credit: Wikipedia)

Thirty-five big U.S.-based multinational companies added jobs much faster than other U.S. employers in the past two years, but nearly three-fourths of those jobs were overseas, according to a Wall Street Journal analysis.

Those companies, which include Wal-Mart Stores Inc., International Paper Co., Honeywell International Inc. and United Parcel Service Inc., boosted their employment at home by 3.1%, or 113,000 jobs, between 2009 and 2011, the same rate of increase as the nation's other employers. But they also added more than 333,000 jobs in their far-flung—and faster-growing— foreign operations. More...

Dealers See Fed Buying $545B Mortgage Bonds

Image via WikipediaAfter cutting its target interest rate for overnight loans between banks to a range of zero to 0.25 percent, the Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2.

Now the biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates. More...