Wednesday, January 5, 2011

Fed's Hoenig Warns of New Economic Imbalances

It was another boring day of algo trading on Wall St as the robots scalped each other for a few points hour after hour after hour.

This market is acting so bizarre.  It moves higher when the news is bad and then does nothing when the news finally looks more promising!

The problem the market has here as I said earlier today is it can't unwind all of the easing without destroying the whole recovery. 

Hoenig was out with some interesting comments regarding Fed policy today:

"Hoenig, who repeatedly dissented against what he regarded as excessive monetary accommodation as a voting member of the Fed's policymaking Federal Open Market Committee last year, predicted that currently "modest" inflation will increase as the pace of recovery picks up.

Hoenig, in remarks prepared for the Central Exchange, also expressed strong concern about the record federal budget deficit and its "ramifications for monetary policy." He said it could lead to "sharp and disruptive" movements in interest rates and exchange rates if not dealt with."

Quick Take:

Oh don't be silly Mr. Hoenig.  The Fed has this all under control.  Blowing bubbles is very efficient and does not present any increased risk to the markets. 

If you just look at the 10 year today you will be able to see that your Chairmen has this all under control.  You need to stop all of your dissenting and get with the program!!:

You see?  There is no risk of inflation.  Just look at food prices if you don't believe me:

"Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN’s Food and Agricultural Organisation said on Wednesday.

The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.

The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices."

Take Continued:

Alrighty, let me turn the sarcasm off.  The Fed's reckless policy of printing money is obviously doing a lot of damage.

This might be good for the banks but, as you can see above, it's devastating for the rest of the globe when it comes to rising food costs.  The Fed is basically forcing people in many third world nations to starve as they attempt to bailout their greedy banker friends by printing like there's no tomorrow.

The Bottom Line

Unfortunately for the rest of the world when we create free money for the banks it never sits in cash.  Bankers would never think of doing such a thing.  There is too much money to be made speculating with it!

Therefore it sloshes all across the globe creating mini bubbles in bonds, gold, silver, stocks, and food.  The problem is these bubbles always eventually pop because these addicted gamblers always need to find new "action" once they run something up as far as it can go.

Hoenig obviously sees this and knows if the economy shows an uptick then it will create the recipe for an inflationary disaster.

Ironically, the bulls better pray for more bad economic numbers because you are going to see an instant inflationary crisis if the economy shows signs of life.

The "sweet spot" for the bulls is a crappy economy with tons of money printing.  An improving economy with money printing is actually a nightmare for the bulltards because the QE toy and all of the "free money" associated with it must be put back in the closet.

The bond vigilantes are obviously ready to pounce as soon as any inflation appears in the economy.  The mere risk of inflation crushed bonds today after the strong jobs number.

Rising prices are already being seen in areas like India, China, and even Europe. 

Folks don't kid yourself:  Inflation is heading straight this way if we keep seeing numbers like this and the Fed keeps the pedal to the metal when it comes to easing.


Herb said...

I think "modest inflation" is anything under 20%.

Jeff said...



Everything is nuts right now.

Hearing lots of Obamacare news. I'll keep you posted.