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MARKET ROUNDUP
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 Dow:The Federal Reserve did what investors expected today. Specifically, policymakers kept short-term interest rates unchanged, and they lopped another $10 billion off the QE program. We’ve now seen QE shrink 59 percent to a monthly pace of $35 billion from $85 billion before the initial taper, on its way to zero by this fall.
At the same time, Fed officials also sounded much more optimistic about economic growth in their post-meeting statement. The text noted that “labor market indicators generally showed further improvement” … that “growth in economic activity has rebounded in recent months” … and that “household spending appears to be rising moderately and business fixed investment resumed its advance.”
Chairman Janet Yellen piled on at her post-meeting press conference, too, sounding relatively optimistic about growth. Perhaps because of the latest data and Yellen’s own comments, the tone of questioning from reporters seemed much more skeptical to me as well.
Instead of asking why the Fed wasn’t looking to provide even more perceived support to the economy, questions were along the lines of: “Ummm … why are you still sounding so cautious on policy when inflation is picking up … unemployment has dropped below your previously highlighted targets … and volatility is so low?”
Yellen responded by saying that market participants need to understand and appreciate that the path of policy is highly uncertain. She added that if the inflation and jobs data comes in strong, rates could rise sooner and more quickly than the Fed is currently forecasting. And that, frankly, is precisely what’s happening already!
Finally, Yellen stressed that the Fed is continuing to plan how to exit from its excessively easy policies, and that more information will be forthcoming soon. She claimed that shouldn’t send a signal about the direction of policy. But have you ever been involved in extensive planning discussions about contingencies that are either A) never going to happen or B) are getting further out in time, rather than sooner? Yeah, me neither!
Bottom line: I think it’s clear that a drumbeat is getting steadily louder around the world. I’m talking about the drumbeat toward tighter money.
It’s not just the U.S. Take New Zealand. The Reserve Bank there started raising its benchmark interest rate in March. It has since followed up with two more 25-point hikes, including one last week. That leaves its key rate at 3.25 percent, and post-hike commentary suggests another increase is coming soon.
Or how about the U.K.? Bank of England governor Mark Carney, hopped across the pond from Canada to take the reins in July 2013. He was widely considered an uber-dove, someone on the order of Ben Bernanke, and he delivered on that view initially.
He talked about keeping interest rates pegged to the floor basically forever and continued the U.K.’s aggressive QE program. But what is he doing now? He’s completely changing his tune!
He just gave a speech last week, the key takeaway of which was “We’re going to raise rates sooner than you think, Mr. Market!” Other policymakers and economists have echoed that message since then.
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| The cost of ground beef has gone up 11 percent and pork has increased 9.4 percent since last spring, according to US Department of Labor statistics. |
Here in the U.S., signs were pointing toward tighter money even before today’s meeting. Several Federal Reserve members have recently spoken out against the extreme market complacency their policies have caused. They have also spoken more optimistically about the economy, and faced an increasing amount of pushback from the academic community about their high-risk, excessively easy policies.
And of course, we got the blockbuster consumer inflation report yesterday out of the Bureau of Labor Statistics. It showed widespread inflation across a whole host of goods and services. Heck, things are so bad even the New York Post is talking about “a barbecue season bummer” caused by surging meat, poultry, and fish prices.
In sum, there has never been a more appropriate time — a more opportune time — for the Fed to shift even further toward tighter monetary policy. I believe that’s likely to happen at the next couple of meetings, and indeed, it is already happening to some degree since QE is going to disappear entirely by this fall. Short-term interest rate hikes should follow not long thereafter.
All else being equal, that should lead to higher interest rates across the board. It should also boost the value of the dollar vis-Ã -vis currencies like the euro. That’s because the European Central Bank (ECB) is well behind the U.S. in the monetary policy and economic cycle.
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“There has never been a more appropriate time — a more opportune time — for the Fed to shift even further toward tighter monetary policy.” |
It doesn’t have to derail the entire stock market, as long as economic growth persists in a way that supports earnings growth. But with complacency running high and some parts of the market looking increasingly frothy, I’m focusing on highly rated stocks in sectors wrapped up in their own private, secular bull markets rather than just “buying the market.”
So that’s my blueprint for investing success … and my take on the Fed’s latest move. But I’m interested in what you think about the Fed’s latest step. What impact will the elimination of QE have on the markets and interest rates? Or your investing style?
Also, do you think the Fed is behind the curve – and should act more aggressively? Or do you think the Fed is being too aggressive in light of the state of the economy?
You can share your comments here, and I’m sure the discussion will be a lively one!
| OUR READERS SPEAK |
Speaking of the Fed and the side effects of its reckless policies, many of you chimed in on how prices are going up all around you — the very definition of high inflation.
Reader Ken said: “Everyone who has been to a supermarket recently knows that everything has increased in price quite substantially. The only ones who don’t know this are the bean counters in D.C. Even the IMF says raise minimum wage to counter this trend. Also an increase for senior citizens would not go amiss!”
Then there’s Reader Richard J., who said: “Either the Feds are trying to pull the wool over our eyes, or they have their heads so far up their derrieres that they will never again see the light of day. Everything is higher in price because retailers have down-sized everything. A pound is now 14 oz., toilet paper rolls and paper towels have less on the rolls … Would I like to have 15 minutes at a Fed meeting with no interruptions !!!”
And Reader R.J. really got me laughing with this comment on how the government will just turn up the heat on its book-cooking stove if prices rise too much:
“Inflation is of course starting to be a problem. But the folks that ‘calculate’ the numbers will start switching components to appease the Fed.
“Eggs too expensive? We can switch to tree bark. Oranges burning a hole in your pocket? Switch to Tang powder. Airfare sky high? Hitch a ride on a cargo boat, who cares if it takes 3 weeks to cross the Atlantic!”
Right on, R.J.! Any other thoughts you would like to share on the cost of living are always welcome at the website. Just go here to share with your fellow investors.
| OTHER DEVELOPMENTS OF THE DAY |
 ISIS militants are now starting to take aim at Iraq’s oil infrastructure, striking the key Baiji oil refinery about 140 miles northwest of Baghdad. It’s unclear who remains in control at the facility, which produces gasoline and other fuels for the domestic economy.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 34 comments }
As I have pointed out on another Weis news service, I think that GM held off on reporting it’s very serious ignition switch problem until the Federal Government could sell it’s large equity stake in the company. In other words, the US Government is behind the delay!
this fed is behind the curve. The keystrokes and printing presses of this fed have created skyscrapers , bridges , and roads to nowhere. This artificial prosperity will meltdown.
When was the last time the Fed’s economic forecast was right? I’ve forgotten whether this is the fourth year or the fifth that economic growth was supposed to take off. There is plenty of history proving that fiat currency suppresses economic growth rather than stimulates it. I keep hearing from Washington and Wall Street that the economy is doing well, yet according to polls 70% of Americans believe the Great Recession never ended. The Fed has done wonders pumping up asset prices without benefitting the real economy, and Obama has the unmitigated gall to complain about income inequality. If you’re riding the market trend be sure to strap a sofa cushion to your butt. The landing won’t be pretty.
DON’T GET GOVERMENT WORTHLESS PAPER. GET SOME HARD ASSETS IF YOU EXPECT TO SURVIVE OBOMA’S FAKE MONEY AND HIS FAKE WORTHLESS PAPER MONEY. I PERSONALLY DON’T BELIEVE ANY STATISTICS COMMING FROM OBOM.
Mostly out of the market now except for some high dividend companies. I’m rolling over to the TBT. I buy more every time it drops below $60. This seems like a no brainer.
Is TBT Tim Buck Too?
The Fed will do everything it can to keep interest rates well below inflation and devalue the Dollar.The ONLY thing that will stop them is a crashing Dollar and it doesn’t matter what the Dollar does vs real goods(AKA inflation),only how it compares to other junk currencies.
It is not just GM. There are products everywhere that get away with serious defects. How many cribs, high chairs, playpens, etc have been recalled by many different manufacturers. Many do not cause deaths, just injuries and illness. Meats, vegetables, and fruits (Colorado Cantaloupes) all can have the same impact. Our businesses have a responsibility to be proactive on these situations, but they are not. Just like the big banks who deny responsibility and receive slaps on their wrists, so do all the other businesses with defective products and items. We are treating the symptoms and not the problems.
Would like the heads in Washington take a weeklong stroll in major cities, like San Francisco, Detroit, Portland and count how many homeless people they can SEE with their eyes, then visit the foodbanks.
Ask the people they see there if they are willing to trade places with them for a year or so.
Everything is downsized in food and prices are raised. It use to be that you could cover a slice of bread with a square of cheese. Not anymore. You need a square and a half.
My grandson said the other day: “that’s ok Grandma, I’ll just eat all the bread around it first then eat the best part with the cheese after.” Even kids notice! They are smarter than the folks in Washington.
Harry Dent, of Boom Bust publication, has predicted gold will hit near $1430 before collapsing to $700 by late 2016 or early 2017. He has accurately predicted collapses in gold in the recent past. What is your reaction?
Les Jordan
Once I called them bureaucrats, now I call them burrowcrats because they have their heads (if they have one) in a hole up to their bum.
GM has been building junk sense the mid 70’s!
Let them go bankrupted just like all the co’s they fleeced over the years and bankrupted!
No I don’t agree with GM’s assessment. From the very first sign of smoke, we could see
management firing up their peace pipes. They switched into our Federal Government’s
favorite maneuver: just tell them what they want to hear= truth, honesty and transparency
is not an option.
GM’s top management has known for over 12 years of this problem and yet they did
nothing. Many lives were lost and many more have been severely injured without a single
inclination of a problem or responsibility. Heads need to roll and criminal indictments need
to handed down. This country needs to re-establish responsibility, moral character, and
justice within our government’s actions and the legal system.
Every single person has made mistakes. It just happened that those mistakes through life were the basis for their learning curve. Nobody, no body, unconsciously make mistakes unless they’re incompetent to the office they hold or unless there’s massive plan to destroy. We’re not here where we are by accident, by mistake. I’s CHANGE.
My first real job in 1960, I had to go through two weeks of learning company policy and how to adhere to the rules. I opened the book to the first page and in big black letters there was the key to future thinking. ” LITTLE LEAKS SINK BIG SHIPS”.
All these problems, all the so called embarrassments coming from the WH, it’s not their fault, it’s our fault, we put them in there. Nothing is going to change until we get a trustworthy leadership. Yes, I know, I didn’t respond to the request. We’re way past the point of no return. Larry was very good in spelling out the ” War Cycles”. It’s like a warning of a Tsunami coming and nobody is paying attention.
GM fixed? The insiders believe it was never broken. Bigger question is why is Barra getting such a pass on the problems of the past, i know she was only there for 30 years! Wasn’t she in charge of HR for a while? My company HR dept (who i think are worthless btw) tell me their role is so important to maintain the culture of the company. Laughable, yes i know, but makes you think what she really knew or IGNORED…
The Fed. should stop already—just go to QE “0”
There is no such thing as wise centrally planned economies–it is fascism, plain and simple
On CBS News, this evening, a woman running a furniture store In Texas said her trucks are running constantly, so she is obviously selling and making some money, and that is good, but the cost of fuel for those deliveries is apparently eating up profits to where she complained she can’t afford to replace some of those aged trucks. This is an example of the trend I spoke of in yesterday’s forum: inflationary costs of essentials will gradually result in delayed and reduced purchases of things that can be put off, with lower sales of those things eventually causing layoffs in those industries, and lower employment figures. What happens when inflation and higher interest on credit causes that woman’s customers to start holding off on buying new furniture and appliances? It won’t happen immediately, but an Inflationary Depression is inevitable, especially with our lying politicians trying to fool us and themselves about how much inflation there actually is.
We have an inflationary economy on essential goods now. Food, energy, and services used on a daily basis are all in an inflationary mode that is depleting the lower wages of the common person. As the majority get squeezed more and more turmoil will rise up in the streets which is already beginning now. Municipalities will and are getting hit with higher expenses to serve and protect depleting the revenue. It is a snowball on a downhill run and needs a hard solution. Some cities are already cutting subsidized services because of short revenue.
Would I buy GM stock?
In a word, NO. When I buy any individual stock, I prefer to own the BEST of the breed.
Does GM make the BEST cars in the world? By any consumer reputation, NO!. They have produced some dam fine looking ones over the years, but few standouts in terms of quality, or economy. That said, I own two of them. I also own two Ford products, and own their stock. No, currently Ford does not make the BEST cars in the world either, in my opinion. Might I buy GM stock someday, who can know?
When a country’s leaders lie to its people about things, it is a sign of breakdown. Whether you count the run up to the Iraq war, the NSA testifying before congress, the bank bailout crisis, or your elected official who never admits how screwed up we are right now!!
The retied have been getting cost of loving raises, but our minimum wages don’t automatically raise. Why not cut off the geezers’ COLA until minimum wages are raised, and indexed to inflation? Seems fair that workers should not have to fall behind the idle.
Add to the list my 2014 paltry Social Security increase was most eaten up with the increased costs of Part B and RX plan and in mid-June I am $507 away from entering the “donut hole” for prescription medications.
Mike,
Maybe you can tell me how monetary policy (whether tight or not) can fix this problem. If 70% of the US economy is a result of domestic spending and more than 60% of Americans haven’t received a real wage increase for more than two decades yet prices continue to rise, where is the American consumer going to get the extra money to gin up the economy?
At the current monthly rate, we can expect to about add 2.4 million new jobs per year. There are an estimated 18 million under or unemployed workers waiting in the wings for a livable wage paying job with more than a million new immigrants per year wanting work.
For six years cheap money has been abundant…growth is still tepid and inflation is tame by historical standards. So now, if the Fed starts raising interest rates how is that going to increase job prospects and help workers get better pay so they can spend more? If unions are busted by design and government immigration policy further saturates the labor market with competition from abroad, how is the American worker going to have any leverage for better pay?
The Fed says its job is helping create more jobs for America…how does this work under these circumstances?
Bill
The FED understands only too well that every percentage point is raises rates means $175 Billion added to the annual deficit due to increased interest payments (3 per cent = half a trillion dollars annually in increased interest payments). Returning rates to historical levels would devastate the fragile economy, bankrupt the country and destroy main street. The FED will continue to print money and hold down rates ala Japan because the alternative in not acceptable.
You wouldn’t know that interest rates are going up by what the banks are paying. Citibank just slashed the interest on my savings account from .15 to .08. Chase is offering $400. to open a checking and saving account. $15,000. Holding period 6 months. Only paying .01 interest. I am getting other crazy offers from banks.
Buy GM? No way today.
Buy GM today? Speaking of bad switches, I think the legislature should replace a few more bad switches in Washington while the discussion is still open.
Take over the the robber baron Fed!
http://www.lewrockwell.com/2014/04/donald-w-miller-jr-md/currency-masquerading-as-money/
GM cannot change appreciably due to the law of inertia. This company’s largest shareholders during its crisis days were the US Government and the UAW, supporting a Democrats election to the Presidency. There is no accountability because neither of those two institutions are accountable to the people or its members.
Management cannot redirect the mindset of this status qou entrenched company because there is no reward at the individual level for taking responsibility. More likely the opposite as whistleblowers are easy targets.
GM would only have become accountable if it had been allowed to to go bankrupt and reorganize without the legacy burdens of the UAW and USA Inc. limiting its future. No wonder Detroit is bankrupt as well. It’s the same mindset.
It is clear to me that there is already inflation in prices but not wages which is what the fed wants and will do what it has to achieve it
Just flew on American Airlines… 1st baggage fee…$25, 2nd bag, $35. no peanuts on board unless you want to buy some for $3..no blanket, no pillows, no magasines….I’m sure sodas are next to be crossed off their list of amenities … all form of schedule snafus ,gate changes, and announcers who badly need some diction lessons. Flying 1st class belongs to fewer and fewer folks… Mostly corporate people who keep prices out of reach for the middle class….Oh yes,… aren’t those seats still shrinking?
I have been following QE closely. Every time one QE program ended, the stock market went down. When QE 2 began the stock amrket went up. Same is true for QE3. This tells me, once again that the market is addicted to cheap money. After QE ends, I beleve the market will correct. I believe this because the second quarter figures are not going to be good. This market is being driven by sentiment, invester psyscology. We are not lookiing into the structural problems that have caused reductions in productivity since the 1970’s. I am specifically taliking about excessive taxation, regulation and litigation.
With respects to your fed and the uk.
I think a clown could do better, both governments will needs a gun to there heads to increase interest rates. they can’t aford to pay there debts now.
My answer is buy solid assets oil gold silver and emerging countries who are not connected to this insanity of qe. Terry Shead
You know inflation has gotten obvious when my kids complain that their Reese’s Peanut Butter Cups are smaller this year on their smores than they were last year.