Fed chief Powell’s actions prodding Trump to change Fed’s structure

The Federal Reserve is believed to be raising rates on this coming Wednesday by a quarter point putting the Fed Funds Rate at 2.5%.

Fed chair Jay Powell, while saying the Fed is data dependent for future rate changes, seems to have walked back a bit his projected three raises in 2019.

However if the Fed is data dependent as Powell has said, the Dec. 19 decision should be to stand still if you are solely working off the dual mandate of the Fed to be guarding against inflation, while creating full employment.

The Fed’s biggest concern when it came to inflation was asset bubble inflation as in the stock market rise since President Trump’s election. If you look at wages, producer prices and consumer prices there is little in the pipeline suggesting that inflation will be above the targeted 2% annual growth that the Fed targets.

While Powell was Trump’s pick to lead the Fed after Janet Yellen stepped down, I believe Treasury Secretary Mnuchin was the driving force behind the pick and Trump knew little of Powell’s thoughts on economic and monetary policies.

The President’s tweets on Fed moves and speeches tells us that Powell & Co have a differing agenda than The White House when it comes to the economy.

Powell’s four rate hikes since March have certainly taken the wind out of the sails of stocks and house prices. These are the assets of the American people and Trump sees Powell as undermining his economic growth prospects for these people.

After a decade of near-zero rates, where Americans were battered by no interest on savings and low-to-nil wage gains, the Fed needs to get its foot off of the brakes and that is what the president is saying.

Only through growth — and that’s what the tax cut was meant to spur — can the US move forward on reducing its $21 trillion debt level. If you give a tax cut and then cut the economy at its knees with tightening credit, then you set yourself up for a deflation/stagflation scenario that could arrive closer to the 2020 election cycle.

This is not lost on President Trump. And this is why we are hearing about structural change coming to the Federal Reserve in 2019.


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Chair Yellen is no Joe Namath

All I’m going to say is the Fed chair Yellen is no Joe Namath.

On Wednesday in a speech the Fed head said, “Will I say there will never, ever be another financial crisis? No, probably that would be going too far. But I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will.”

Namath guaranteed the New York Jets would win Super Bowl III and backed it up.

Yellen, who seems to be on the path of bursting asset bubbles with a credit-busting, rate-raising strategy, also said, “asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios, but I wouldn’t try to comment on appropriate valuations, and those ratios ought to depend on long-term interest rates.”

Even if you discount the 2.5% drop in Google yesterday on the huge European regulator’s $2.7 billion fine for skewing its search results, stocks sold off hard on her comments.

Now I’m not one to pandered to ageism, however at 70 years old, Chair Yellen has a different time horizon than the rest of us.

But if the Fed thinks it can burst stocks, art and home asset bubbles by constricting credit in a low inflation environment, then Yellen & Co are looking at a possible deflationary crisis, which they have little in their toolbox to combat.

One can think that the Fed can always lower rates again and expand its balance sheet to fight deflation, but that’s just continuing the boom/bust cycles.

Cohn at Fed would give Goldman excessive power

A report came out Tuesday from a banking analyst suggesting the Gary Cohn, the president’s chief economic adviser would more than likely replace Fed chief Janet Yellen.

Should this move happens it would give Goldman Sachs the top two economic and monetary positions in the Trump administration. Cohn heading the Fed would join Treasury’s head Steve Mnuchin.

So much for draining the swamp. If you add senior counselor Steve Bannon you have a hat trick for the white shoe firm.

In October  2010, Yellen  began a 14-year term as a member of the Federal Reserve Board that will expire in January 2024. However the position serves at the president’s pleasure, so Trump can replace her at anytime.

 

 

Bitcoin trading with paper tiger; Fed can't job a rate rise

The Securities and Exchange Commission is scheduled to announce Friday whether the Winklevoss twins can begin marketing their bitcoin ETF.

This is a fund much like GLD or SLV, which are paper contracts to buy or sell gold and silver. It’s a vehicle to get into these commodities without buying the physical metal.

In bitcoin, it will allow you to track the value of the cyber-currency without setting up a digital wallet to buy the cyrpto-currency.

Now I’m sure the marketing material will tell you it’s much safer than getting into bitcoin itself, because the ETF cannot be hacked and yada yada yada.

However, the Winklevii as I call them, who lost ownership to Facebook to Mark Zuckerberg in a contentious lawsuit going back to their days at Harvard, can’t tell you that the value of the ETF will not fall in the event of a hack as was the case a few years ago with a Japanese entity called Mt. Gox.

Bitcoin lost a little less than 50% of its value overnight after this “magical” exchange said it was hack and most of the digital currency it was holding for others were taken.

Now if the bitcoin ETF follows the GLD or SLV funds, it will not hold much bitcoin at all.  The metals ETF don’t give you the precious metal when you buy, no you have a certificate and the funds settle most transactions in cash, no gold or silver.

So I have not seen or expect to see a sharp rise in bitcoin value should the SEC approve the electronically traded fund.


The Labor Department’s reported 235K jobs created in the first full month in office.

This number is strong enough to give Janet Yellen & Co. reason to raise rates next Wednesday given the other strong data points. Certainly the bond market pros see it coming as the yields are rising on all government debt.

Despite all this and the thought that the Fed will lose Wall Street cred if it does not raise, I believe she will blink and say “while conditions have improved and their was much discussion, yada yada yada, the Federal Reserve will hold rates for now.”

They will point to inflation being below trend, which is 2%. They will point to a lowering of Q1 GDP projections and say it needs more time.

Truth is as I have said all year, there will be one rate rise, if that for 2017. And it will not be the Ides of March. Et Tu, Brute?

$16+ trillion lost in global equities in 6 months

As I’ve written about the Great Fleecing of the US middle class by the Federal Reserve during its many phases of Quantitative Easing — where trillions of dollars were handed over to the richest Americans in the form of asset bubbles in stocks and bonds — now a new market report comes out saying global stocks have lost nearly $17 trillion in value over the last 6 months.

Most of European and Asian stock indices are in bear market having lost more than 20% of its value from their August 2015 highs, the US has lost 16% since the summer.

Now who do you think experienced those losses? The 1%ers, who move in and out of stock, bonds and other markets as they have their wealth managed by pros, or the dwindling ranks of middle class Americans trying desperately to hold on to the last vestiges of a nest egg or to fund college for their children, using the tired old thought of buy-and-hold being proffered by a broker at Merrill Lynch, who more than likely is divorced with an alcohol or drug problem and losing money in the market himself.

This market bubble popping is a very easy way to pare the gains of the Americans who for some reason were not completely wiped out in the 2008 crash. These boom and bust cycles happen on a 7.5 year run up, with roughly an 18 month sell off in between.

So let’s figure how this will play out.

  • First, the Fed is done with interest rate hikes. One and done will be the mantra for 2016.
  • Secondly, this market sell off will continue through the summer. The Fed can’t cut rates in second half of 2016, for fear of embarrassing the Democrats over their failed monetary policy. So the overall stock market trend will be lower lows and lower highs through the election.
  • Lastly, this continued economic malaise may be the needed fuel to put a Donald Trump into the White House.

I have stayed clear of politics in my column, but if I am correct on the markets slipping lower through the election cycle, there will be a hunger to move away from socialistic monetary thought and that could usher in a Trump win.

That said, will there be much difference on the monetary side with a Trump White House? Probably not, but that is for another column down the road.