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The Fed’s Wizard Behind the Curtain

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[Our good  friend Doug Behnfield, easily the smartest financial advisor we know, thinks it’s possible the Fed will do nothing today even though the whole world is expecting QE3. America’s economic problems have grown considerably since Operation Twist was implemented, says Doug, and the Fed may be reluctant to risk revealing to the world that it has no more bullets. In the guest essay below, he explains why it may be better for the central bank to do little or nothing this time, especially with the stock market so strong, than to be perceived as powerless when the economy fails to respond to yet another dose of monetary voodoo. RA ]

Much has been written about The Wonderful Wizard of Oz by L. Frank Baum as an allegory for monetary policy.  At the time it was written in the late 1890s, the country had been ravaged by deflation and William Jennings Bryan was running for President on a platform that, among other things, advocated “free silver” or bimetallism as a method of stimulating economic growth. Back then there was no Federal Reserve and we were on the gold standard. The Treasury could increase the amount of official silver coinage as a powerful and unconventional way to juice the money supply. How quaint.  According to the scholarly literary criticism, Dorothy represents the “America-honest everyman” , the Kingdom of Oz is Washington D.C. and the Wizard is the President. Dorothy must travel the Yellow Brick Road, signifying gold and have an audience with the Wiz who supposedly has the power to get her back to Kansas.

Deflation was hardest on the farmers in the late 1900s. In the book, the slippers she snags from the Wicked Witch of the East in Munchkin Land are silver (they were replaced with ruby ones for Technicolor in the movie version). The Emerald Palace is an illusion, representing paper currency and the Land of Oz is, you guessed it, the land of money since money was denominated in ounces of gold. Today we are once again suffering a lack of economic growth and we have just been through a severe bout of asset deflation (i.e. housing and equities). The call has come out from Wall Street for more monetary stimulus in the form of Quantitative Easing by the Fed in the belief that making more credit available to the system will result in our economy taking flight. Pay no attention to the man behind the curtain!

Damn the Monkeys

The focus in today’s global economic condition is on the Central Bankers. Perhaps that is why The Wizard of Oz is a prime example of life imitating Art. Damn the Flying Monkeys. Lions and Tigers and Bears, who cares?! If we can just coax the Wiz into some unconventional monetary policy, our problems will be solved. 2007 marked the beginning of the first downturn in the post WWII period that did not respond to extreme conventional monetary policy, i.e. lower interest rates. That is because we are in a secular credit contraction for the first time since the Great Depression. The Fed took short rates to 0% in 2008 and nothing happened. Everything just kept imploding. Four years and several rounds of unconventional policy actions and coordinations later, we still appear to be at risk of another severe economic contraction phase, and this next one is likely to be even more global in scope than the first leg down, which ended in 2009. Many pundits believe that the Fed is running out of policy options that are strong enough to make a difference. I am one of them.

The reasons seem simple enough. The society as a whole is way too indebted to want to expand their consumption via more debt. On the contrary, a large segment of society is powerfully focused on balance sheet rebuilding (and they make up most of the households that are creditworthy). The last 10 years of the prior credit cycle turned into a world-class bubble because it included a populist real estate mania. Practically the entire society embraced the house as a linear path to wealth and, as a result they did everything they could to maximize their exposure. Primarily, this meant adding the home in as a primary investment class for asset allocation purposes and using as much leverage as possible to load up the portfolio. In order to understand what comes next, I prefer to lean heavily on “Bob Farrell’s Market Rules to Remember (see below),” particularly Rules 1-4, and the Case-Shiller Home Price Index. In addition, it helps to be able to visualize the trajectory of Household Debt to Disposable Income and Government Debt.

MARKET RULES TO REMEMBER

1.         Markets tend to return to the mean over time.

2.         Excesses in one direction will lead to an opposite excess in the other direction.

3.         There are no new eras – excesses are never permanent.

4.         Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

5.         The public buys the most at the top and the least at the bottom.

6.         Fear and greed are stronger than long-term resolve.

7.         Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.

8.         Bear markets have three stages – sharp down – reflexive rebound – a drawn-out fundamental downtrend.

9.         When all the experts and forecasts agree – something else is going to happen.

10.       Bull markets are more fun than bear markets.

It is my firm opinion that Bob Farrell’s Rules should be taken as gospel in all matters involving prices. Rule #2 states that mean reversion requires two extremes. That implies that calling the bottom of the mean reverting decline in house prices will be just as daunting as calling the previous bubble peak. What will not happen is that the decline phase will be short or mild. The intellectual argument for endless price appreciation for housing was practically unanimous at the top and intoxicated in retrospect. The recent consensus that housing has bottomed is probably way off the mark too.

An understanding of the housing mania and its aftermath are critical because the housing mania was the most powerful excess in this credit cycle and possibly in human history. First of all, investment in owner-occupied housing beyond the most Spartan shelter requirements is not “productive investment”. Rather, it is consumption on a monumental scale. Unlike investing in a railroad boom or an oil boom, money spent on primary housing does not create revenue for the investor. To the contrary, houses, as we all know, are money pits. For this reason, the housing mania has left our society saddled with demands on our cash flow that reduce our ability to afford new consumption or to save and invest. Second of all, tapping home equity during the bubble has left many households depressed from the hangover of a spending spree that was funded by seemingly almost free money.

Blowing One’s Inheritance

An appropriate analogy would be the household that receives a $250,000 inheritance while earning $100,000 in household income. Statistics indicate that an inheritance of this magnitude is spent very quickly. Typically, the household’s life style doubles to about $200,000 per year for a couple of years and then everyone has to go back to mowing their own lawn. The dynamics of too large a home investment and too much home equity debt are particularly negative for Baby Boomers whom are now belatedly launching into retirement planning.

The chart of Household Debt to Disposable Income and Government Debt reveal several dynamics that also add to the thesis that additional consumer credit is not the medicine our society needs to jump-start the economy. First of all, the principle of mean reversion implies that American households have a very long period of debt reduction ahead of them. Second, government debt (and whatever economic stimulus that implies) has gone parabolic and appears ripe for a reversal. Before you shake your head, remember that it is basic human nature to start thinking in linear fashion when a trend has gone way further than you ever thought it would. If, as I suspect, dramatic fiscal legislation containing substantial tax increases and spending cuts are directly ahead, the initial impact on the economy will be recessionary. Hey, recessions happen. And they are more likely to happen in the first year or two of the Presidential Cycle. That means 2013 and 2014. Historically too, recessions come quicker and expansions are both shorter and weaker in periods of secular credit contraction.

It seems that we “Dorothys” have done what we were told to do and we would like to have the wizard keep his promise. But perhaps we cannot depend on Fed policy to solve our problems. In The Wizard of Oz the wizard is a bit of a liar. He is not a wizard at all, just a balloonist from Nebraska. But for some reason the loyal subjects of the Emerald City need to believe that he is the Great and Powerful Oz-and so he maintains the illusion. When first approached by Dorothy and her crew for help, he sends them on a mission to bring back the Wicked Witch of the West’s broom. Believing so deeply in his power, they enthusiastically head out. Sort of like the stock market and, to a lesser degree the economy after QEII (quantitative easing) in August, 2010. When Ben Bernanke announced his plan to massively quantitatively increase the holdings of bonds on the Fed’s balance sheet, thereby injecting hundreds of billions of dollars into the banking system, most market participants were confident that economic growth would explode. This was an extraordinarily powerful act of monetary policy considering that there was no proximate financial crisis and the economy was still expanding. And yet, the economy did not take off. It bounced a bit and the stock market flew, but for the most part behavior remained cautious at the household level. The stock market soon retreated and economic growth  slowed back down to stall speed. I do not think the Fed will risk doing the same thing again, particularly because there is a risk that the response will again be negligible and the man behind the curtain will be revealed as a mere mortal.

What Ben Didn’t Promise

At the Federal Reserve Board retreat in Jackson Hole, Wyoming, the modern day wizard (Ben Bernanke) gave a much anticipated speech in which he said essentially nothing except “I am Oz, the Great and Powerful!” At first, the market rallied 14 points on the S&P500. What he did not promise is that the Fed will announce QE3 at their September meeting. However, with every negative piece of economic data reported, stocks tend to rally in the belief that bad news means good news from the Fed. In the recent past, the ultimate stock market reaction to the disappointment of “no new QE” has been decidedly negative. When QE2 was ending in July 2011, the FOMC Statement did not indicate that it would be extended. Partly as a result, an 18% collapse in stock prices occurred in 13 trading days between July 25 and August 9. The decline was halted by the Fed announcement specifying that short term rates would be held at 0% through at least mid-2013. There have been several examples of unmet expectations of lesser magnitude since then.

In reviewing the market conditions that have prevailed prior to recent major policy easing decisions, it is tempting to conclude that the Fed only does so in response to weak markets. For example, the recent sharp decline in stocks in the month of May resulted in the extension of “Operation Twist” into year end and hints of additional Quantitative Easing. They do not seem to act decisively just because employment or other economic data is weak. Admittedly, weak economic data is usually accompanied by weak stock market action, but not recently. The stock market is very near 4 year highs. Because of that, the risk that a major monetary policy announcement is not met with a visible, positive response in the market is very great. The last thing the Fed can afford is the impression that they do not have the power to control the economy. For that reason, any further action is most likely on hold until the next meaningful decline in the stock market. And even then, the Fed may believe that it has already used all of its useful tools and continue to opt for rhetoric.

Only Rhetoric Remains

But then, perhaps we, the people have always had the power to solve our own problems, and right in our own back yard. We may just have to find that out for ourselves. Unfortunately, all the wizard may have left to offer is rhetoric. Very possibly monetary policy was only a cushion for the pain and austerity that goes along with mean-reverting a credit bubble. Along with a lot of potentially dire unintended consequences, perhaps it will change the trajectory in such a way that makes the path safer and easier. But it is becoming increasingly clear that the Fed is no match for Mother Nature. She will run her course, whatever that is. Americans will most likely solve their fiscal problems by putting one foot in front of the other and getting rid of the debt. Sustainable recovery awaits—some…where — after we rebuild our collective balance sheets.

***

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  • Cam Fitzgerald September 14, 2012, 12:34 am

    And by the way….all you gold bugs who are rejoicing today might want to stop and consider that on the outside chance QEIII does bring about a recovery in housing prices that it will probably kill golds upward trajectory. But that is a story for another day.

  • bc September 13, 2012, 10:01 pm

    I really enjoyed “Wicked”, a Broadway musical that tells the back story leading up to Dorothy’s arrival and her impact on the internecine political struggles among the true ruling elites of Oz. Nothing is as it seems to the simple munchkins in the street, and nothing IMO is as it seems to those hanging on Mr. B’s words. Here is my translation of what Bernanke is saying:

    Good people of OZ, things are worse than you think. A lot worse. First, our current status quo is the net result of deficit spending of 1.25 $Trillion per year. While such clearly unsustainable policy would ordinarily cause massive overheating of our economy, it appears to be, mysteriously, accomplishing very little. Moreover, I myself have loaned 16 $Trillion FRN’s into the world financial system at very favorable terms. I have also overtly purchased an abundance of overpriced impaired assets which will eventually be realized as severe losses to the Fed balance sheet and thus to the Treasury which shares in both our gains and our losses by statute. I have also sold short duration Treasuries to purchase long term paper. Soon, I will be forced to unwind this as I am running out of short duration T-bills to sell. The effect will be to dramatically “un-flatten” the yield curve. Long duration borrowing rates will rise dramatically, forcing the U.S. to issue only short duration paper, just like Spain, or Italy, and other strapped banana republics.
    And so I stand before you today and make one final desperate promise to “sell” the last and final shortest term paper under my control; the Federal Reserve Note. I promise to use the proceeds of these “sales” (not to be confused with the 16 $Trillion loans above) to acquire vastly more, indeed, unbounded amounts of impaired assets onto the Fed balance sheet. This will result in catastrophic FED losses when the impaired assets are marked to market and become realized. The losses will flow through to the Treasury by statute which will automatically trigger either tax increases (crushing the life from the economy) or deficits (requiring more printing), or both. This feedback loop will initiate a hyperinflation economic death spiral. By choosing this route, I Ben Bernanke do hereby officially acknowledge my capitulation to the ineluctable economic forces I still do not understand, and apparently have no power to resist. Thank you for letting me serve as your Wizard, but I have failed. It is time to admit it.

  • Robert September 13, 2012, 9:11 pm

    “Our good friend Doug Behnfield, easily the smartest financial advisor we know, thinks it’s possible the Fed will do nothing today even though the whole world is expecting QE3”

    DOH!

    And the Coin toss goes to the Fed-

    • Cam Fitzgerald September 13, 2012, 9:36 pm

      QEIII notwithstanding, Robert, this was an excellent article and I concur with many of Doug’s conclusions and his analysis. It remains to be seen how effective this current round of easing will be but I am not optimistic given the amount of delevering that still lies ahead for much of the developed world and the advanced economies. At best, this will only delay the inevitable. In the meantime you might want to pin this article on your fridge. This credit bust has a long ways to go before all is said and done and the prescription at hand is only masking the depth of the real illness.

  • gary leibowitz September 13, 2012, 7:03 pm

    Looks like I was wrong, the FED announced QE3. The street is happy. The breakout should be here. I am not expecting any more steep corrections.

    Up up and away for 6 more months.

    • gary leibowitz September 13, 2012, 7:54 pm

      I will repeat: I think it is very dangerous to place puts in this market. You are clearly fighting the market by doing so. Have patience and wait it out if you refuse to place calls.

      Since the accumulative evidence was already set for a turn around, this added stumulus, will create a scenario where talks of rate hikes could occur as early as 3 months from now. Earnings will be powerful. We have entered the “sweet spot”. A dramatic hollywood directed blow-off should result from this last phase.

      AAPL did break out, even if for one day. A fast move up will happen. Put away any put spreads. Gambling for now should be one sided, UP. This goes for the whole market. Gold bugs will also be rewarded. It will however mimic equities.

      I am sticking with my December predictions. All is coming together. Watch for mounting evidence of economic strength all over the globe.

      As for expecting some fake out with some orchestrated manipulation, sorry still don’t see it. AAPL for example has had fast moves before, and will so going forward since it is a high flier. ALL, I repeat ALL high fliers have bouts of fear and greed amplified.

      But hey, what do I know. I just look at the charts and fundamentals. Can this be a blow-off right here? Anything is possible but highly unlikely.

      China spending huge amounts on infrastructure, the Fed added anther round of easing, EU adapted bond purchases with the saction of the German courts. Recent domestic economic evidence is showing an up trend in almost every single sector.

      Sweet spot indeed!

      &&&&&&&

      Gary, you’ve evidently ignored my repeated suggestions to check the archive of Rick’s Picks touts. You would find that we’ve shorted into market rallies perhaps a dozen times over the last several years with only a couple of losses, a few scratches and some very nice gains. We did so not expecting to catch the Mother of All Tops, but to take advantage of very juicy odds if we were right.

      Archives aside, you should work the numbers to see what our spreads in Apple are calculated to achieve no matter what the stock does. Here’s the latest tout, with updates:

      $ + AAPL – Apple Computer (Last:679.74)

      September 7, 2012 8:36 am GMT

      Over the last two weeks, we’ve constructed an elaborate hedge that consists of eight Dec-Oct 620 put spreads @ 14.00; four short Sep 615 puts @ 6.20; and long two Oct-Sep 700 call spreads @ 10.00. It leaves us ever-so-slightly frontspread and presumably comfortable if AAPL makes its way toward 700 between now and expiration Friday in two weeks. A decline would work for us as well, since it would likely add more value to our put spread than we would lose on the call spread. Meanwhile, and fortunately, the September 615 puts we shorted @ 6.20 look like goners, meaning the entire $2480 we received for them will be ours to keep. That would partially offset the premium we paid for our ten calendar spreads. For now, sit tight. ______ UPDATE (September 11, 12:33 a.m. EDT): Bid 0.50, good-till-canceled, to cover the four September 615 puts we are short. _______ UPDATE (September 13, 1:00 p.m. EDT): The September 615 puts opened at 0.37, so we’ll consider the position closed with a theoretical/actual profit of about $2300 after commissions. Imputing this sum to the eight Dec-Oct 620 put spreads will effectively lower the cost basis to 11.10. We also hold two Oct-Sep 700 call spreads for 10.00 that are currently worth around 11.50. They have the potential to go to around 22.00 by next Friday’s expiration, although realizing full value when we close out the spreads could be tricky.

    • Cam Fitzgerald September 13, 2012, 9:52 pm

      “Watch for mounting evidence of economic strength all over the globe”.
      ——-
      Seriously, Gary. You must be kidding…….right? Are you watching the data on rising Chinese manufacturing inventories, export numbers, commodity demands, inflation, PMI or a whole host of other indicators that fit your “fundamental anlysis”. The picture is quite bleak given declining growth prospects in Europe and elsewhere. You might just want to check your optimism at the door and rethink the coming six months. If the market concludes that this QE is not stimulating anything more than a short term artificial boost in commodity prices then we are in serious danger of a correction. This QE may even become the catalyst for that correction as the market is already topping out.

    • gary leibowitz September 13, 2012, 11:14 pm

      Rick, not implying you don’t make money on your calls. I just think you should leave your very bearish assumptions aside and let the technicals dictate your play. You do like to interpret doom scenarios wherever there is a possible break down. You grudgingly accept the possibilty of a sharp rally becuase your charts tell you its possible but rarly do concur. If your bias these last few years has not restricted your gains, then I apologize.

      &&&&&&

      My bearish assumptions have no bearing on my market forecasts, Gary. In fact, with today’s DJIA move through a 13502 “midpoint Hidden Pivot,” I am prepared to see the Dow rally a further 1460 points.
      RA

    • gary leibowitz September 13, 2012, 11:36 pm

      Cam,,

      All I can say is allow the facts to dictate. If wrong than the data will show it. China is such a virgin landscape for explosive growth that any over expansion or heated sectors can be quickly dealt with today. In 10 to 20 years that “might” not be the case.

      China follows the US and EU economic trends. Since the EU has adapted the FED’s policies, and here domestically it is clearly showing signs of recovering, these events will prop up China’s exports. I suspect we will see this all within one months time. In 3 months they will be once again hitting 10 Plus percent growth.

      Are you suggesting that in the EU and here, we are going the wrong way? I see every sector strengthening, or at the least stable.

      I have been called out on every single suggestion that this will be a big year for equities. I stated in December of last year all the way up to today. I gave my reasons and like it or not they have , so far, come true.

      I am betting that before this year is out the street will debate raising rates to cut off inflation. In 3 short months.

      Everyone on this board was incredulous whenever I gave my reasons for a great equities year. Call me lucky but so far I am taking the lead in this speculation race, and leaving everyone else far behind. Will I stumble and not finish? We shall see.

    • Cam Fitzgerald September 14, 2012, 12:22 am

      Gary, I made no mention of your past calls and that is not the topic here. You might want to explain though how QE will lead to a propping up of Chinese exports. I don’t see the connection. The purpose behind easing is to encourage credit growth/maintenance during a secular credit bust while hoping to stimulate both consumption and manufacturing output and thus push down the employment rate. Instead we have seen that the excess capital made available at the lowest rates in history are underutilized while velocity sits in the cellar. That alone should indicate that easing is not achieving the desired goals. Unemployment meanwhile remains high and manufacturers are in no mood to initiate expansionary plans. On the contrary we are seeing projects cancelled and scaled back while inventories rise. In theory the billions upon billions of investable assets sitting on the ledgers of banks worldwide could be devoted to the creation of new endeavors but instead we see them languish at rates below the current level of inflation while their owners await a recovery that is not possible. Unless I am mistaken we will not see significant growth in Chinese export markets while we hurtle towards a domestic recession and therefore we should not expect big improvements in earnings growth going forward. This obviously applies to companies everywhere, not just Chinese firms. There is a missing link between making funds available and getting firms to actually use them. Until and unless that happens I cannot see growth or expansion on the horizon. And lets not forget it is the consumer who ultimately decides and creates market demand in the end. Unfortunately too many are credit impaired so that even those who might want to take advantage of such low rates cannot do so. Perhaps this will be addressed in some way so that demand rises in the future but I doubt it will happen. So we are entering a slow growth or no-growth environment that is in danger of slipping outright into a prolonged recession and thus can anticipate consumer retrenchment and rising savings rates, not a burst of economic activity as you suggest.

  • PhotoRadarScam September 13, 2012, 4:17 pm

    A few considerations missing from the housing values chart… The definition of an average house has changed over the decades. The house from 2010 is MUCH more different and inherently more expensive that the house from 1920 because it is bigger, has more technology, and buildings codes require more features such as sprinkler systems. The other consideration missing is the fact that there is no national housing market. Markets like LA have land supply constrictions that will cause inherently higher prices because there is a lack of develop-able land in the LA area and the population to use and buy that land has grown considerably over the past decades. Prices cannot be expected to return to that of an era where land was readily available. So I’m not saying the idea is wrong, but there are a lot more considerations than the chart reflects.

  • John Jay September 13, 2012, 4:14 pm

    Just think of Ben Bernanke as a more sophisticated version of Eddie Haskell.
    His explanations of his “Concerns” about the economy are about as sincere as Eddie’s “Good morning Mrs. Cleaver, my, that’s a lovely dress you’re wearing this morning!”
    I don’t know Ben keeps a straight face when he tells those bold lies.

  • gary leibowitz September 13, 2012, 4:14 pm

    Love the piece, thank you Doug. The overall premise I agree with. Some of the details I take cause with. QE’s did buy time. It was never meant as a solution. It allowed the banks to recover and draw down its bad debt while earning free money. It has worked. Banks are lending more. The reason why this cycle didn’t get jump started was simply because the debt implosion hit the banks the hardest. We are seeing signs of increased borrowing and lending. The other problem is that US public debt as a percentage of GDP keeps increasing. Given enough time consumers will revert back to its old ways. I don’t believe time is however on our side. The world debt and the political responses will be visceral, and one that also favors re-election. There is where we will fail. It would seem logical to assume that given choice governments will inflate their way out of insolvency. That is where the debate over deflation and hyperinflation comes in. I believe we will first have a sharp but short spiral in deflation followed by politically induced hyperinflation. It will decimate anyone expecting a one way move.

    My timetable fits with Doug’s assumptions. I believe the next 6 months we will see a stimulated economy, enough to see increased debates and pressure to raise rates. Everything is set for a spike in public borrowing, along with stabilized housing and employment. It will be short lived where the politics of the day will be toward debt constraint. We should see actual government debt reduction by the start of next year. As Doug pointed out the first 2 years of an elected president is usually the time for taking the hard choices. In my opinion the result will be huge swings, first with a spiraling deflation, followed by hyperinflation. A wild ride is just around the corner.

    My reasons behind this see-saw move is as follows:
    1 – The debt crisis forced corporations to go in to survival mode. That not only allowed them to reduce their own debt but set policy that shrank the work force, wages, and benefits. This policy will not change for a very long time. Their ever increased productivity and profit margins will give them incentive to continue on thsi path.
    2 – Bank lending and consumer borrowing will increase and we should see a short spurt of increasing economic activity.
    3 – While true inflation will rise faster than it has, corporate policy will not change fast enough to compensate with higher wages.
    4 – Combine with a post election policy to start getting the government debt in order it will push us over the edge.

    A sharp deflation period should ensue. World politicians will have no choice after that but to hyperinflate to save the lenders from disaster.

    A complicated but logical conclusion. Will be surprised if I actually get it right. It does sound good on paper.

    • Doug September 13, 2012, 4:50 pm

      This is a good response. However, I don’t see the source for a short-term increase in economic activity and borrowing. The consumer is STILL up to their eyeballs in debt with DECLINING real wages. We also have a global slowdown, and Ben isn’t likely to use up his final bullets with gas and the stock market so high. I agree with your deflation/hyperinflation scenario, but think the deflation will come as soon as the markets realize Ben isn’t going to do anything significant until the markets tank and people beg him to print. BTW, other than keeping rates low for longer, Ben can cut the rate paid on excess reserves, which is also inflationary. The key point is that he won’t use up bullets until the pain of deflation takes hold and he is begged to do so. That way, when things go to hell he has the cover of saying he simply gave people/businesses/investors what they demanded.

    • Doug September 13, 2012, 6:11 pm

      For clarification, my name is Doug but I’m not the author of the article above.

  • PhotoRadarScam September 13, 2012, 4:01 pm

    I doesn’t matter what the announcement is. The result is already forecast by the charts.

    • Robert September 13, 2012, 9:13 pm

      Well, not quite ALL the charts.

      It was a GREAT day to be long AGQ.

      Wait, What’s that smell?

      Quick and easy profits?

      I LOVE that smell.

  • Pat September 13, 2012, 2:50 pm

    Sorry, but there WILL be some kind of QE announced today. No way Ben is going to disappoint the markets, $4+ gasoline be damned. The stock market is ALL he cares about….period. Its as simple as that !

    • Carol September 13, 2012, 3:02 pm

      I have to agree with Pat. Intellectually Doug is correct but since when did Benny or any of his gang ever do “the right thing”?

      Well I guess we wont have to guess much longer – ugghhh.

      Don’t know about the rest of you but my cost of living has skyrocketed in recent years and my income has dropped 🙁 I don’t think I am alone.

    • Bam_Man September 13, 2012, 5:07 pm

      I also agree with Pat.
      The stock market is all they have left. ZIRP and ultra-low bond yields are poison for every single pension fund and insurance company. Bernanke knows this and he also knows that for pension funds and insurance companies, the stock market is now the only game in town. He knows he must get stock prices to rise by at least 7% EVRY YEAR or every single pension fund and insurance company will go bust – and quickly.

  • Bobby September 13, 2012, 2:25 pm

    According the the chart above, “History of Home Values” we should have reverted to the mean by now. What are your thoughts?

    • Rick Ackerman September 13, 2012, 8:38 pm

      Have patience, Bobby…

  • mac September 13, 2012, 10:32 am

    the older people know something!
    ..read R Russel and Sinclair – 70’s and 80’s age…

    we know the 30 somethings are very air-headed, in denial, very feminized, don’t really even believe in any “truth” and have been brain washed via schooling and MSM. They know about 9-11 but shrug it off. What this means is they are irresponsible cowards or ignorant.

    They watch so many movies all concerned with violence, even women killing hundreds in these department of defense paid for movies…Hollywood – another controlled slave of mind control – believe it! Life in Baghdad, that’s what some of these movies represent. Keeps us ready for more murder….
    The whole scene stinks, with the govt’s the enemy much of the time. Sociopaths, psychopaths have the power – they do not care, do not care, don’t care about us.
    Hillary and Leon and O-bomb-ba are a pathetic trio in control of our futures.
    We can fix it? Not looking likely, but maybe the Chinese or the Russians will slap us awake one day? Or yes!, just the usual war (***Gag Rule: On the Stifling of Dissent and the Suppression of Democracy by Lewis Lapham, former editor of the American monthly Harper’s Magazine ) could now be on tap to distract us and make us little compliant slaves-serfs, after all it is un-patriotic to complain when at “war”.
    Ben will print…b/c the Banks need money. The speil may seem like no qe, but we know there is no other choice.

    • Robert September 13, 2012, 9:16 pm

      Far out, Mac….

      Far out.

      I can dig it, my brother.

  • John Jay September 13, 2012, 6:57 am

    Bernanke has already said, I believe, that it is ZIRP to 2015 now. He does not need to do a special QE at all, ZIRP is getting his job done. And that job is wealth transfer from you and I to the oligarchs, or the 400 elite families, or JPM/GS, or whoever you choose to name as the villains in all this. He and his cronies know what ZIRP is doing to retirees depending on a fair rate of return.
    They do not care, at all, at all, at all.
    He and his cronies know there is substantial inflation due to QE/ZIRP and Dollar devaluation.
    They do not care, at all, at all, at all.
    Are you paying more or less now than you did 10 years ago for the following:
    Food, gasoline, health insurance, tuition, car registration, property taxes, heat, water, and electricity.
    For the average working guy the increases in those areas alone have been enough to push him over the edge financially.
    Ben’s bosses will only get on his case for a very narrow
    slice of inflation.
    That would be wage inflation, and inflation in their cost of funds.
    Ben gets an A+ on those counts, real wages have not budged since the 1970s, and cost of funds to the elites will continue to sit at zero to 2015 and beyond.
    Only the very simple will think that Ben and his bosses really expect, or even remotely desire the US economy to respond to their fiscal antics.
    Every month there remains less and less of a real economy to revive.
    We have not had a positive balance of trade since 1976 due to the DC policy of shipping jobs and factories overseas.
    Lawyers hold seminars for corporations on how to go through the motions of looking for American workers so they can hire ever more H1-B workers.
    Obama is intent on backdoor citizenship for the millions of illegals to keep competition for the remaining jobs
    intense and ongoing.
    That is a brief presentation of my case that Ben and Friends are perfectly happy with the status quo.
    I do not see a shred of evidence that the Federal government has any plans other than more of the same, piled higher and deeper on top of us all.
    Ben knows the US economy is not going to revive with the policies in place since JFK was liquidated and LBJ stopped silver coins and gave the keys to the mint to the MIC. Each President since LBJ has been complicit in his own way, and has been worse in his own way than the preceding one.
    There is no economy to revive, only a corpse, staggering around on ZIRP, and the fading after image of a reserve currency.
    They only need to pretend to wonder why the economy does not respond to their heroic efforts for a little while longer.
    As the last of us old timers that remember a different America die off to the point that our votes are marginal at best, they will dispense with the charade.
    And the distracted mob will not know any other world than what they see on TV.

    • Tech-trac September 13, 2012, 3:50 pm

      I appreciate your summary of events that have delivered us to the enemy.


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