Sorry I am a little late today. The market has been pretty quiet. The Fed's Lacker was out warning of higher interest rates. An overview from Bloomberg:
"June 16 (Bloomberg) -- Richmond Federal Reserve Bank President Jeffrey Lacker said downside risks to growth have ``diminished'' and reversing previous interest rate cuts makes ``eminent sense'' as the economy recovers.
While the danger of a more rapid slowing in growth ``has not entirely disappeared, my sense is that such downside risks have diminished appreciably,'' Lacker said today in a speech in Spartanburg, South Carolina. ``And just as easing policy aggressively in response to emerging downside risks made sense, withdrawing some of that stimulus as those risks diminish makes eminent sense as well.''
Quick Take:
I am starting to wonder if the Fed is all bark and no bite when it comes to raising rates. I see no signs of an economic recovery, and I am starting to think this interest rate talk is a bunch of jawboning versus actually taking action. I am increasingly reading that this is the general consensus of many economists.
If they pull the trigger and raise rates, the economy could collapse. If they don't raise them than inflation soars. The Fed is pretty much screwed no matter what they do.
The New York factory numbers were negative today which shows the economy is contracting. Builder confidence dropped again to an all time low. I can't see how they raise rates unless inflation becomes unbearably high.
I think this is why you see so many Fed presidents disagreeing with one another and dissenting as the Fed meetings. They really have no clue on what to do. They are starting to realize that they are losing any control they had on the economy, and the bond market is taking yields higher which makes Fed rate cuts useless.
Inflation is now higher than the Fed funds rate of 2%. This means rates are at zero. Taking them lower will only make the bond market panic more which will result in higher rates. The Fed is using a BB gun to fight a problem that requires an army of tanks.
On top of these issues, we have this giant nightmare in front of us
Ok people! So how are we going to pay for all of these entitlements going forward? Anyone have any ideas? Something has to give here folks.
I advise everyone to go take a look at this site that was created by Ross Perot. The former presidential candidate is trying to form a consortium of the best and the brightest to search for ideas on howto tackle this huge disaster we face in the future.
I am sure these are the stats that the Fed's Richard Fisher saw when he warned about this problem a few weeks ago during his excellent speech. The government still refuses to discuss this problem and it should be close to the top in terms of priorities right now!
The costs of these programs currently eat up 18% of our GDP. If we continue to spend at the same rate, in 30 years its going to be 30% of GDP. In 40 years it will be more than half of GDP!! There is no way we can allow this to happen. Costs must be cut and taxes must be dramatically raised in order to keep these programs solvent.
I hate taxes as much as the next guy, but our economy is facing a severe downturn if major changes are not made.!
We need to fix these problem now or our economic future is in terrible jeopardy. What makes this even worse is we are facing this monster problem as our economy is on the verge of a collapse.
An economic reset with a dramatic reduction in the cost of assets is the only part of the answer. The second part involves massively reigning in spending by the government and increasing taxes. This is going to be a very painful process, but it must be done.
How anyone can be bullish on stocks in this environment is beyond me.
2 comments:
We could do two things to bolster the entitlement rograms. Forbid Congress once and for all from stealing from the SS fund for general tax purposes, including the bs method of issuing IOU's that will never be repaid. Second, immediatley stop spending money on Iraq and Afghanistan.
Gene
I totally agree with you. All of this overspending has got to stop! The IOU's are a joke.
I have a feeling you will see lots of changes in the November elections if we hit an economic storm.
I have a feeling we will have to learn this the hard way.
By the way a warning to all.
There was a confirmed "Hindenburg" today in the stock market. This is rarely seen and usually is a prelude to a massive drop in the markets within 4 weeks.
There were a few of these before the '87 crash. Be careful out there. this is a very dangerous time in the markets.
Here is a definition:
Jim warned us that a Hindenburg Omen is only occurring when the 10-week moving average of the NYSE Composite Index, based upon a weekly Friday close, is in a rising trend. If the NYSE Composite 10-week moving average Friday close is down, the signal is invalid. Second, if the McClellan Oscillator is in a positive configuration (i.e., with a + reading, above zero), you will be best served to postpone any selling until the McClellan Oscillator turns negative. However, when a Hindenburg Omen signal occurs with the McClellan Oscillator in negative territory, "Stand not upon the order of thy going..." - Sell at once!
Hindenburg Omens are relatively rare. In checking them from 1997, going back to 1970, Jim found that they usually occurred prior to major declines, with relatively few false signals. Sometimes two or three signals occurred in a row, within days of each other. I consider that a signal expires 30 days after its last occurrence, unless a decline has taken place within that time. There was only one signal before the 7% drop in October of 1989, but there were several days of signals in both 1987, and again in June- July before the 20% drop into October, 1990. There were several before the 10% drop in March 1994.
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