Peter Coyne, checking in on the markets now that the euphoria has settled down...
Peter Coyne
Every suit on Wall Street had their Web browser opened to federalreserve.gov yesterday.
As 2:00 approached, fingers furiously tapped F5 on their keyboards to refresh the page… hoping to be the first to read the FOMC release and place their orders. Split seconds make a difference in the paper swapping business.
They were pleasantly surprised. "No taper, more paper" extended their lease on stimulus-fueled gains. Stocks booked record highs. Dow, 15,676; S&P 500, 1,725; Nasdaq, 3,783. Today, the market opened up but began paring back some of those gains.
Gold had lift off yesterday too. Trough to peak, it was up over $60 for the day. At writing, the yellow metal is sitting at $1,367.
The benchmark 10-year yield is 2.72% after sliding 16 basis points yesterday. The drop in yield made other currencies more attracBlogger is a free blog publishing tool from Google for easily sharing your thoughts with the world. Blogger makes it simple to post text, photos and video onto your personal or team blog.tive relative to the dollar. The greenback is down against the euro and sterling.
By now, you know the magic numbers the Fed governors are looking for before turning off the money spigot -- 6.5% unemployment or greater than 2% inflation. Whichever is first. Until then, acres of money will be printed.
"According to data compiled by Bloomberg," writes David Franklin in yesterday's Sprott's Thoughts, "the Fed's balance sheet has been increasing at an average rate of $91.9 billion each month during 2013 -- yes, more than the $85 billion headline number. While the Fed has been buying assets at a rate of $85 billion per month, they have also been further adding to their purchases by investing earned interest and proceeds from maturing bonds.
"The largest single monthly addition to their balance sheet in 2013," Franklin continues, "was during the month of April when the Federal Reserve added $114.7 billion of assets, almost $30 billion more than the stated purchases of $85 billion."
By the Fed's own projections… we could see those purchases wind down as early mid-2014 or as late as mid-2015.
Then again, those projections could be wrong too. In the meantime, an avalanche of other economic data has been released in the past 48 hours…
Housing starts came in below expectations for August. Those numbers will be revised downward. Existing home sales reached a six-year high last month, beating expectations by about 200,000 sales. Buyers locked in mortgage rates before they head any higher. Jobless claims came in 11,000 fewer than expected for August. Those too will probably be revised upward.
Bernanke has made it clear that the data will pave the way for policy. But markets work in real-time while data come in on a monthly basis.
Doesn't that create a disconnect? Doesn't the situation on the ground change by the time the data are collected, collated and reported?
Data revisions only compound the problem. How can you make a policy decision if the facts are constantly changing? All of the Fed's policies, by definition, are outdated.
The Federal Open Market Committee makes policy more or less on a monthly basis. But by the time the Fed formulates a policy, it's addressing the specific scope and size of a problem that no longer exists. It thinks it has a live recording when all it has is a still shot.
So whenever the Fed does change its policy, figure it will be wrong. Figure it will be too little too late. Or too much too early. Or whatever combination of wrongness it happens to be. As an investor, you should assume only one thing: Your purchasing power today is greater than it will be in 10 years.
"Before the Fed trans-configured everyone's expectations [yesterday], the value of the dollar was something like a 1,300th of an ounce of gold," reads yesterday's New York Sun editorial.
"By the mid-afternoon, it had plunged to but a 1,360th of an ounce of gold. We wouldn't want to make too much of minute-to-minute fluctuations in the value of the dollar, not in this age of fiat money. But we wouldn't want to make too little of it either, not in this age of fiat money."
In today's episode of The Daily Reckoning, Dr. Ron Paul explains why government legislation is tying your hands when it comes to protecting yourself from inflation. Once you realize it, writes Dr. Paul, it "is no wonder that governments fight tooth and nail against sound money…"
Read on below…
[Ed. Note: If yesterday's gold spike made you wonder what will spur the next run up -- and where gold's going from here -- we have the perfect answer for you.
Oddly enough, it comes to us from a book published long ago by Rep. Ron Paul, during his first stint in Congress.
It's 221 pages long and best of all, since Dr. Paul is our guest essayist today and (and because it's one of the most important reads you'll have all year) we've locked in a copy for you for free.
To find out how to grab your free copy of what some call Dr. Paul's "gold bible" click here.
No comments:
Post a Comment