Tag: news

Submitted by Peter Schiff of Euro Pacific Capital,

Most market watchers expect that Janet Yellen will grapple with two major tasks once she takes the helm at the Federal Reserve in 2014: deciding on the appropriate timing and intensity of the Fed’s quantitative easing taper strategy, and unwinding the Fed’s enormous $4 trillion balance sheet (without creating huge losses in the value of its portfolio). In reality both assignments are far more difficult than just about anyone understands or admits.
 
Unlike just about every other economist, I knew that the Fed would not taper in September because the economy is still fundamentally addicted to stimulus. The signs of recovery that have caused investors and politicians to bubble with enthusiasm are just QE in disguise. Take away the QE and the economy would likely tilt back into an even more severe recession than the one we experienced before QE1 was launched.
 
Given the Fed’s failure to initiate a tapering campaign in recent months (when it was highly expected) it is surprising that most people still believe that it will pull the trigger in the first quarter of 2014. But if the Fed could not take action in September, with Ben Bernanke at the helm and the nation as yet untraumatized by the debt ceiling drama and Obamacare, why should we expect tougher treatment from Janet Yellen? This is particularly true when you consider Yellen’s reputation as an extreme dove and the uninspiring economic data that has come in recent months. 
 
Rather than explicitly describing the possibility of a reduction of asset purchases, recent Fed statements have merely said that policy would be “adjusted” according to incoming data. It has never said what direction that adjustment may take. Yet somehow the market has concluded that an imminent reduction is the only possibility. But the opposite conclusion is more likely. Recession avoidance is really the Fed’s only concern and it will always come down on the side of accommodation. Therefore an expectation for a 2014 taper is just wishful thinking.
 
But that does not mean that QE will go on forever. It will come to an end, but not because the Fed wants it to, but because the currency markets give it no choice. A dollar crisis would ultimately force the Fed’s hand, and the longer the Fed succeeds in postponing the inevitable, the more damage its policy mistakes will inflict on our economy.
 
Yellen’s second task will be equally impossible. Since the QE campaign began in 2010 the Fed has more than quadrupled the amount of bonds that it holds on its balance sheet,to more than $4 trillion of Treasury and mortgage-backed bonds. To accumulate this massive cache, the Fed has become by far the largest buyer in both markets. Its purchases have pushed up the prices of those bonds and have kept long term interest rates low for both consumers and businesses.
 
When the QE was first launched, Ben Bernanke tamped down fears of the program by saying the Fed would one day sell the bonds that it was buying. But as the Fed’s balance sheet ballooned, many in the market began fearing that the unwinding of these trades would crush the market for Treasuries and mortgage-backed securities. Bernanke soon allayed these fears by saying that the Fed would not actively sell, but would simply allow bonds to mature. But this is just a convenient fiction.
 
If stock or real estate prices were to enter into bubble territory (which I believe has already happened), or if inflation were ever to surge past the Fed’s low target range (which I believe is certain to happen), then the Fed would have to sell bonds to get in front of these trends.
 
Through Operation Twist, the Fed has already swapped a very large portion of its short-term bonds for long-term bonds. The slow process of waiting for bonds to mature is unlikely to slow down asset bubbles or inflation. The argument also does not account for the fact that the Treasury will have to sell new bonds in order to retire the principle on the maturing bonds. Since the Fed is the primary buyer of Treasury bonds, the Fed would have to add to its balance sheet when it’s trying to shrink it. Such a cycle is just a debt rollover that leaves the size of the Fed’s balance sheet unchanged.
 
Unless other buyers of Treasuries or MBS can be found to replace the Fed’s prodigious buying, the Fed will remain the only game in town. Given these realities, how can we possibly expect Janet Yellen to actually diminish the amount of assets the Fed holds? She won’t be able to do it and any expectations to the contrary are pure fantasy.
 
So we should not be asking when Ms. Yellen will begin withdrawing stimulus and shrinking the Fed’s balance sheet. Instead we should be asking how the markets will react when she runs out of excuses for delaying the taper, or ultimately decides to expand QE rather than contract it.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/99qbKfST0pE/story01.htm Tyler Durden

Submitted by Peter Schiff of Euro Pacific Capital,

Most market watchers expect that Janet Yellen will grapple with two major tasks once she takes the helm at the Federal Reserve in 2014: deciding on the appropriate timing and intensity of the Fed’s quantitative easing taper strategy, and unwinding the Fed’s enormous $4 trillion balance sheet (without creating huge losses in the value of its portfolio). In reality both assignments are far more difficult than just about anyone understands or admits.
 
Unlike just about every other economist, I knew that the Fed would not taper in September because the economy is still fundamentally addicted to stimulus. The signs of recovery that have caused investors and politicians to bubble with enthusiasm are just QE in disguise. Take away the QE and the economy would likely tilt back into an even more severe recession than the one we experienced before QE1 was launched.
 
Given the Fed’s failure to initiate a tapering campaign in recent months (when it was highly expected) it is surprising that most people still believe that it will pull the trigger in the first quarter of 2014. But if the Fed could not take action in September, with Ben Bernanke at the helm and the nation as yet untraumatized by the debt ceiling drama and Obamacare, why should we expect tougher treatment from Janet Yellen? This is particularly true when you consider Yellen’s reputation as an extreme dove and the uninspiring economic data that has come in recent months. 
 
Rather than explicitly describing the possibility of a reduction of asset purchases, recent Fed statements have merely said that policy would be “adjusted” according to incoming data. It has never said what direction that adjustment may take. Yet somehow the market has concluded that an imminent reduction is the only possibility. But the opposite conclusion is more likely. Recession avoidance is really the Fed’s only concern and it will always come down on the side of accommodation. Therefore an expectation for a 2014 taper is just wishful thinking.
 
But that does not mean that QE will go on forever. It will come to an end, but not because the Fed wants it to, but because the currency markets give it no choice. A dollar crisis would ultimately force the Fed’s hand, and the longer the Fed succeeds in postponing the inevitable, the more damage its policy mistakes will inflict on our economy.
 
Yellen’s second task will be equally impossible. Since the QE campaign began in 2010 the Fed has more than quadrupled the amount of bonds that it holds on its balance sheet,to more than $4 trillion of Treasury and mortgage-backed bonds. To accumulate this massive cache, the Fed has become by far the largest buyer in both markets. Its purchases have pushed up the prices of those bonds and have kept long term interest rates low for both consumers and businesses.
 
When the QE was first launched, Ben Bernanke tamped down fears of the program by saying the Fed would one day sell the bonds that it was buying. But as the Fed’s balance sheet ballooned, many in the market began fearing that the unwinding of these trades would crush the market for Treasuries and mortgage-backed securities. Bernanke soon allayed these fears by saying that the Fed would not actively sell, but would simply allow bonds to mature. But this is just a convenient fiction.
 
If stock or real estate prices were to enter into bubble territory (which I believe has already happened), or if inflation were ever to surge past the Fed’s low target range (which I believe is certain to happen), then the Fed would have to sell bonds to get in front of these trends.
 
Through Operation Twist, the Fed has already swapped a very large portion of its short-term bonds for long-term bonds. The slow process of waiting for bonds to mature is unlikely to slow down asset bubbles or inflation. The argument also does not account for the fact that the Treasury will have to sell new bonds in order to retire the principle on the maturing bonds. Since the Fed is the primary buyer of Treasury bonds, the Fed would have to add to its balance sheet when it’s trying to shrink it. Such a cycle is just a debt rollover that leaves the size of the Fed’s balance sheet unchanged.
 
Unless other buyers of Treasuries or MBS can be found to replace the Fed’s prodigious buying, the Fed will remain the only game in town. Given these realities, how can we possibly expect Janet Yellen to actually diminish the amount of assets the Fed holds? She won’t be able to do it and any expectations to the contrary are pure fantasy.
 
So we should not be asking when Ms. Yellen will begin withdrawing stimulus and shrinking the Fed’s balance sheet. Instead we should be asking how the markets will react when she runs out of excuses for delaying the taper, or ultimately decides to expand QE rather than contract it.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/99qbKfST0pE/story01.htm Tyler Durden

Speaking, ironically, at the Economic Club of Detroit in 1988, Ron Paul warns oh-so-prophetically of a coming economic crisis and the profound implications of the government’s fiscal and monetary program largesse.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/mHZX5_pra2Q/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

The death of the dollar is coming, and it will probably be China that pulls the trigger.  What you are about to read is understood by only a very small fraction of all Americans.  Right now, the U.S. dollar is the de facto reserve currency of the planet.  Most global trade is conducted in U.S. dollars, and almost all oil is sold for U.S. dollars.  More than 60 percent of all global foreign exchange reserves are held in U.S. dollars, and far more U.S. dollars are actually used outside of the United States than inside of it.  As will be described below, this has given the United States some tremendous economic advantages, and most Americans have no idea how much their current standard of living depends on the dollar remaining the reserve currency of the world. 

Unfortunately, thanks to reckless money printing by the Federal Reserve and the reckless accumulation of debt by the federal government, the status of the dollar as the reserve currency of the world is now in great jeopardy.

As I mentioned above, nations all over the globe use U.S. dollars to trade with one another.  This has created tremendous demand for U.S. dollars and has kept the value of the dollar up.  It also means that Americans can import things that they need much more inexpensively than they otherwise would be able to.

The largest exporting nations such as Saudi Arabia (oil) and China (cheap plastic trinkets at Wal-Mart) end up with massive piles of U.S. dollars…

Instead of just sitting on all of that cash, these exporting nations often reinvest much of that cash into low risk securities that can be rapidly turned back into dollars if necessary.  For a very long time, U.S. Treasury bonds have been considered to be the perfect way to do this.  This has created tremendous demand for U.S. government debt and has helped keep interest rates super low.  So every year, massive amounts of money that gets sent out of the country ends up being loaned back to the U.S. Treasury at super low interest rates…

And it has been a very good thing for the U.S. economy that the federal government has been able to borrow money so cheaply, because the interest rate on 10 year U.S. Treasuries affects thousands upon thousands of other interest rates throughout our financial system.  For example, as the rate on 10 year U.S. Treasuries has risen in recent months, so have the rates on U.S. home mortgages.

Our entire way of life in the United States depends upon this game continuing.  We must have the rest of the world use our currency and loan it back to us at ultra low interest rates.  At this point we have painted ourselves into a corner by accumulating so much debt.  We simply cannot afford to have rates rise significantly.

For example, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has been much higher than that at various times in the past), we would be paying more than a trillion dollars a year just in interest on the national debt.

But it wouldn't be just the federal government that would suffer.  Just consider what higher rates would do to the real estate market.

About a year ago, the rate on 30 year mortgages was sitting at 3.31 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate is $1315.52.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn't.  8 percent was considered to be normal back in the year 2000.

Are you starting to get the picture?

We need other countries to use our dollars and buy our debt so that we can have super low interest rates and so that we can afford to buy lots of cheap stuff from them.

Unfortunately, the truly bizarre behavior of the Federal Reserve and the U.S. government over the past several years is causing the rest of the world to lose faith in our currency.  In particular, China is leading the call for a "de-Americanized" world.  The following is from a recent article posted on the website of France 24…

For decades the US has benefited to the tune of trillions of dollars-worth of free credit from the greenback's role as the default global reserve unit.

 

But as the global economy trembled before the prospect of a US default last month, only averted when Washington reached a deal to raise its debt ceiling, China's official Xinhua news agency called for a "de-Americanised" world.

 

It also urged the creation of a "new international reserve currency… to replace the dominant US dollar".

So why should the rest of the planet listen to China?

Well, China now accounts for more global trade than anyone else does, including the United States.

China is also now the number one importer of oil in the world.

At this point, China is even importing more oil from Saudi Arabia than the United States is.

China now has an enormous amount of economic power globally, and the Chinese want the rest of the planet to start using less U.S. dollars and to start using more of their own currency.  The following is from a recent article in the Vancouver Sun…

Three years after China allowed the yuan to start trading in Hong Kong’s offshore market, banks a
nd investors around the world are positioning themselves to get involved in what Nomura Holdings Inc. calls the biggest revolution in the $5.3 trillion currency market since the creation of the euro in 1999.

And over the past few years we have seen the global use of the yuan rise dramatically…

International use of the yuan is increasing as the world’s second-largest economy opens up its capital markets. In the first nine months of this year, about 17 percent of China’s global trade was settled in the currency, compared with less than one percent in 2009, according to Deutsche Bank AG.

Of course the U.S. dollar is still king for now, but thanks to a whole host of recent international currency agreements this status is slipping.  For example, China just recently signed a major currency agreement with the European Central Bank…

The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.

 

"It's a way of promoting European and Chinese trade, but not doing it with the U.S. dollar," said Brooks. "It's a bit like cutting out the middleman, all of a sudden there's potentially no U.S. dollar risk."

And as I have written about previously, we have seen a bunch of other similar agreements being signed all over the planet in recent years…

1. China and Germany (See Here)

2. China and Russia (See Here)

3. China and Brazil (See Here)

4. China and Australia (See Here)

5. China and Japan (See Here)

6. India and Japan (See Here)

7. Iran and Russia (See Here)

8. China and Chile (See Here)

9. China and the United Arab Emirates (See Here)

10. China, Brazil, Russia, India and South Africa (See Here)

But do you hear about any of this on the mainstream news?

Of course not.

They would rather focus on the latest celebrity scandal.

Right now, the global move away from the U.S. dollar is slow but steady.

At some point, some trigger event will likely cause it to become a stampede.

When that happens, demand for U.S. dollars and U.S. debt will disintegrate and interest rates will absolutely skyrocket.

And if interest rates skyrocket that will throw the entire U.S. financial system into chaos.  At the moment, there are about 441 trillion dollars worth of interest rate derivatives sitting out there.  It is a financial time bomb unlike anything the world has ever seen before.

There are four "too big to fail" banks in the United States that each have more than 40 trillion dollars worth of total exposure to derivatives.   The largest chunk of those derivatives is made up of interest rate derivatives.  In case you were wondering , those four banks are JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.

A huge upward surge in interest rates would absolutely devastate those banks and cause a financial crisis that would make 2008 look like a Sunday picnic.

Right now, the leader in global trade seems content to use U.S. dollars for most of their international transactions.  China also seems content to hold more than a trillion dollars of U.S. government debt.

If that suddenly changes someday, the consequences for the U.S. economy will be absolutely catastrophic and every single American will feel the pain.

The standard of living that all of us are enjoying today depends largely upon China.  They can bring down the hammer at any moment and they know it.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xaS_69VFWJ0/story01.htm Tyler Durden

When one steps back from all the frustration, all the confusion,  all the failures both in the rollout and the mass behavioral experimentation, and the fact that the math just doesn’t work, the primary stated purpose behind Obamacare was simple: to provide uniform, affordable (the A in ACA) healthcare for all Americans. But especially to those who are currently uninsured. At least such was the utopian, egalitarian vision behind its conception. Which is also why, stripping away the political posturing, the html coding errors, the funding issues, the biggest failing of Obamacare would be if it opened, and none of America’s uninsured came. Sadly, this last nail in Obamacare’s coffin, has just been confirmed with a just released Gallup poll which found that a tiny 18% of uninsured Americans – the primary target population for the exchanges – have so far attempted to even visit an exchange website.

Additionally, Gallup previously found that less than half of uninsured Americans (44%) who plan to get insurance say they will do so through an exchange, and about one in four say they are more likely to pay a fine instead of getting insurance. “These findings help explain the low percentage of the uninsured who have attempted to access the exchange websites.”

Actually, Gallup’s last sentence is not factually correct: a satisfactory number Americans have visited the exchange websites, whether due to morbid curiosity or for another reason. It is how few of them have gone through the hassle of signing up (such as just one person in the case of North Carolina) that is the most disturbing, and puts the outright failure of Obamacare’s primary goal in question.

Gallup adds:

Still, the fact that less than a quarter of uninsured Americans who say they plan to get insurance through an exchange have visited one so far suggests that other factors are at work. It may be that many uninsured Americans are waiting to try out the health exchange websites until their highly publicized problems are fixed, or they may simply be putting off decisions about getting insurance until later.

Elsewhere, CBS reports that while the survey doesn’t say why uninsured Americans aren’t visiting the marketplaces, the ongoing technical problems on HealthCare.gov and some state-based sites have likely been a factor. The Obama administration has said that HealthCare.gov should be running smoothly for the “vast majority” of Americans by the end of November. It won’t be. And even when fixed it is unlikely that ultimately enrollment numbers, especially among young people, will surge to the threshold level that would be considered sustainable for this ponzi scheme to survive.

Once the site is fixed, the administration is planning a more aggressive media campaign to encourage more people to sign up for plans on the marketplaces. Administration officials also say they expect many people to put off enrollment until the last minute.

The administration has yet to release figures on just how many people have enrolled in insurance on the new marketplaces so far. However, the incremental reports that have been released so far aren’t encouraging. Sens. Chuck Grassley, R-Iowa, and Orrin Hatch, R-Utah, on Friday released enrollment data from the four insurance companies in the Washington, D.C. marketplace showing that just five people in the District have enrolled so far.

 

“With numbers like these, it’s no wonder the Obama Administration hasn’t wanted to release how many people have signed up for ObamaCare,” Hatch said in a statement. “Whether it’s significant problems with the website, people being forced off the coverage they had or skyrocketing costs, these numbers are even more proof of what a disaster ObamaCare is and why it should be delayed.”

 

The senators said the new mandate requiring people to obtain insurance starting in 2014 should be delayed as Obamacare problems are addressed. At least one Democrat agrees — Sen. Joe Manchin, D-W.V., on Thursday joined Sen. Mark Kirk, R-Ill., to introduce a bill that would delay the mandate until 2015.

 

The administration has said that people have plenty of time — another five months — to sign up. However, the administration is working with state insurance commissioners, CBS News chief White House correspondent Major Garrett reports, to try to help at least some people who have been dropped from insurance plans that don’t meet new Obamacare coverage standards. The administration is attempting to tweak regulations, Garrett reports, to help people who were dropped from their plans but now only qualify for plans they can’t afford.

 

At an event in Atlanta Friday, Health and Human Services Secretary Kathleen Sebelius reportedly said on the issue, “We’re looking at a number of options where there may be an opportunity for that number of people to look at plans that they have right now. But there isn’t any specific proposal at the table immediately.”

A fully functional rollout of healthcare.gov by the November 30 deadline will not happen, that much is clear. But what is most ironic about the whole situation is that it was the delay of Obamacare that was the primary impetus behind the Tea Party’s shutdown of the government. Paradoxically, if Obama had yielded or even negotiated, the ongoing rollout debacle would not exist, as much more time would have been implemented to fix all the glitches, while letting the conservatives foot the blame. Instead, with every passing day that Obamacare is nothing but a (not so fat) pipe dream, the president’s rating keeps dropping.

But worse than Obama’s approval (and disapproval) rating, will be what will happen if, in the 11th hour as usual, all of the young, uninsured potential Obamacare users simply do not show up.

That would indeed be the ultimate fiasco from which no matter how many sophomorically-written, teleprompted daily speeches of lilting grandure Obama gives, there would simply be no walking away from.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rKwaG3r0vNI/story01.htm Tyler Durden

When one steps back from all the frustration, all the confusion,  all the failures both in the rollout and the mass behavioral experimentation, and the fact that the math just doesn’t work, the primary stated purpose behind Obamacare was simple: to provide uniform, affordable (the A in ACA) healthcare for all Americans. But especially to those who are currently uninsured. At least such was the utopian, egalitarian vision behind its conception. Which is also why, stripping away the political posturing, the html coding errors, the funding issues, the biggest failing of Obamacare would be if it opened, and none of America’s uninsured came. Sadly, this last nail in Obamacare’s coffin, has just been confirmed with a just released Gallup poll which found that a tiny 18% of uninsured Americans – the primary target population for the exchanges – have so far attempted to even visit an exchange website.

Additionally, Gallup previously found that less than half of uninsured Americans (44%) who plan to get insurance say they will do so through an exchange, and about one in four say they are more likely to pay a fine instead of getting insurance. “These findings help explain the low percentage of the uninsured who have attempted to access the exchange websites.”

Actually, Gallup’s last sentence is not factually correct: a satisfactory number Americans have visited the exchange websites, whether due to morbid curiosity or for another reason. It is how few of them have gone through the hassle of signing up (such as just one person in the case of North Carolina) that is the most disturbing, and puts the outright failure of Obamacare’s primary goal in question.

Gallup adds:

Still, the fact that less than a quarter of uninsured Americans who say they plan to get insurance through an exchange have visited one so far suggests that other factors are at work. It may be that many uninsured Americans are waiting to try out the health exchange websites until their highly publicized problems are fixed, or they may simply be putting off decisions about getting insurance until later.

Elsewhere, CBS reports that while the survey doesn’t say why uninsured Americans aren’t visiting the marketplaces, the ongoing technical problems on HealthCare.gov and some state-based sites have likely been a factor. The Obama administration has said that HealthCare.gov should be running smoothly for the “vast majority” of Americans by the end of November. It won’t be. And even when fixed it is unlikely that ultimately enrollment numbers, especially among young people, will surge to the threshold level that would be considered sustainable for this ponzi scheme to survive.

Once the site is fixed, the administration is planning a more aggressive media campaign to encourage more people to sign up for plans on the marketplaces. Administration officials also say they expect many people to put off enrollment until the last minute.

The administration has yet to release figures on just how many people have enrolled in insurance on the new marketplaces so far. However, the incremental reports that have been released so far aren’t encouraging. Sens. Chuck Grassley, R-Iowa, and Orrin Hatch, R-Utah, on Friday released enrollment data from the four insurance companies in the Washington, D.C. marketplace showing that just five people in the District have enrolled so far.

 

“With numbers like these, it’s no wonder the Obama Administration hasn’t wanted to release how many people have signed up for ObamaCare,” Hatch said in a statement. “Whether it’s significant problems with the website, people being forced off the coverage they had or skyrocketing costs, these numbers are even more proof of what a disaster ObamaCare is and why it should be delayed.”

 

The senators said the new mandate requiring people to obtain insurance starting in 2014 should be delayed as Obamacare problems are addressed. At least one Democrat agrees — Sen. Joe Manchin, D-W.V., on Thursday joined Sen. Mark Kirk, R-Ill., to introduce a bill that would delay the mandate until 2015.

 

The administration has said that people have plenty of time — another five months — to sign up. However, the administration is working with state insurance commissioners, CBS News chief White House correspondent Major Garrett reports, to try to help at least some people who have been dropped from insurance plans that don’t meet new Obamacare coverage standards. The administration is attempting to tweak regulations, Garrett reports, to help people who were dropped from their plans but now only qualify for plans they can’t afford.

 

At an event in Atlanta Friday, Health and Human Services Secretary Kathleen Sebelius reportedly said on the issue, “We’re looking at a number of options where there may be an opportunity for that number of people to look at plans that they have right now. But there isn’t any specific proposal at the table immediately.”

A fully functional rollout of healthcare.gov by the November 30 deadline will not happen, that much is clear. But what is most ironic about the whole situation is that it was the delay of Obamacare that was the primary impetus behind the Tea Party’s shutdown of the government. Paradoxically, if Obama had yielded or even negotiated, the ongoing rollout debacle would not exist, as much more time would have been implemented to fix all the glitches, while letting the conservatives foot the blame. Instead, with every passing day that Obamacare is nothing but a (not so fat) pipe dream, the president’s rating keeps dropping.

But worse than Obama’s approval (and disapproval) rating, will be what will happen if, in the 11th hour as usual, all of the young, uninsured potential Obamacare users simply do not show up.

That would indeed be the ultimate fiasco from which no matter how many sophomorically-written, teleprompted daily speeches of lilting grandure Obama gives, there would simply be no walking away from.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rKwaG3r0vNI/story01.htm Tyler Durden

“People are, once again, being fooled,” fears Bill Fleckenstein in this brief CNBC clip, warning that investors buying into the stock market at all-time highs here are making a grave error. Investors are ignoring fundamentals at their peril, “in the stock mania in 1999, people were bullish because stocks were going up. In 2007, people were bullish because stocks and real estate were going up. They didn’t look ask – Why are they going up? Is this sustainable? Is this healthy? – and in both cases, it was not.” In the current environment, the bubble Fleckenstein points to is powered not by tech stocks or real estate, but by the Fed’s quantitative easing program. But, he warns, the Fed is losing control of one key market…

 

 

“Now we have the Fed suppressing the bond market such that rates are ridiculously low, and capital is being misallocated everywhere, and the price of nearly everything is out of whack,” Fleckenstein said.

But he says the Fed is starting to lose control already – meaning that stocks could crack even if the Fed continues to buy $85 billion worth of assets each month.

“Interest rates on the 10-year bonds have risen 100 basis points since last spring, and there’s still no tapering,” Fleckenstein noted.

“So why have bond rates risen? I think the Fed is no longer able to dictate where the bond market is going to trade. If that’s the case – and I say ‘if’ – then the game is going to change prospectively, because if the Fed loses control of the bond market, it’s not going to be able to have unilateral say in where assets trade.”
Specifically, Fleckenstein is watching the 3-percent level on the 10-year yield very closely.

“If the bond market trades through 3 percent in the absence of some superstrong economic data or an actual tapering, then it will be clear that something is radically different,” Fleckenstein said.

So once things do change, how low can the market go?

Without getting specific, Fleckenstein said the stocks will head “a lot lower, and enough lower to make people really unhappy.”

 

Via CNBC Futures Now

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wNX-8bT7VPw/story01.htm Tyler Durden

“People are, once again, being fooled,” fears Bill Fleckenstein in this brief CNBC clip, warning that investors buying into the stock market at all-time highs here are making a grave error. Investors are ignoring fundamentals at their peril, “in the stock mania in 1999, people were bullish because stocks were going up. In 2007, people were bullish because stocks and real estate were going up. They didn’t look ask – Why are they going up? Is this sustainable? Is this healthy? – and in both cases, it was not.” In the current environment, the bubble Fleckenstein points to is powered not by tech stocks or real estate, but by the Fed’s quantitative easing program. But, he warns, the Fed is losing control of one key market…

 

 

“Now we have the Fed suppressing the bond market such that rates are ridiculously low, and capital is being misallocated everywhere, and the price of nearly everything is out of whack,” Fleckenstein said.

But he says the Fed is starting to lose control already – meaning that stocks could crack even if the Fed continues to buy $85 billion worth of assets each month.

“Interest rates on the 10-year bonds have risen 100 basis points since last spring, and there’s still no tapering,” Fleckenstein noted.

“So why have bond rates risen? I think the Fed is no longer able to dictate where the bond market is going to trade. If that’s the case – and I say ‘if’ – then the game is going to change prospectively, because if the Fed loses control of the bond market, it’s not going to be able to have unilateral say in where assets trade.”
Specifically, Fleckenstein is watching the 3-percent level on the 10-year yield very closely.

“If the bond market trades through 3 percent in the absence of some superstrong economic data or an actual tapering, then it will be clear that something is radically different,” Fleckenstein said.

So once things do change, how low can the market go?

Without getting specific, Fleckenstein said the stocks will head “a lot lower, and enough lower to make people really unhappy.”

 

Via CNBC Futures Now

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wNX-8bT7VPw/story01.htm Tyler Durden