Exactly When the Fed Will Raise Rates

Posted on December 19, 2014 by MN Gordon

December has been a wild month so far.  Markets have gone haywire.  The DOW dropped 890 points before running back up 710.  Oil prices have been slashed 26 percent to just $55 per barrel.  Gold has gotten kicked in the chin.

But it could be much, much more erratic.  Just ask Russian President Vladimir Putin. He’s got big problems.  For instance, the Russian ruble has depreciated 50 percent this year against the dollar.  What’s more, earlier this week, the Russian central bank had to jack its key interest rate up from 10.5 percent to 17 percent.

Could you imagine if the federal funds rate was at 17 percent?  Nearly every asset bubble would pop overnight.  Financial panic would follow and the economy would be flattened.

Certainly, economic prospects in the United States are much better than in Russia.  For one thing, the United States is not solely dependent on oil revenue.  The economy is much more robust and dynamic.

But that doesn’t mean the United States is immune to the consequences that come with being a poor custodian of one’s currency. Continue reading →

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What to Buy as the Great Unraveling Gets Underway

Posted on December 16, 2014 by MN Gordon

The Federal Reserve’s open market committee meeting is taking place today and tomorrow.  Central to their discussion are the two words “considerable time.”  Have you ever heard something so nonsensical?  What gives?

It all started several months ago when Janet Yellen said these words mean six months.  So, now, if the Fed drops the words considerable time from its press release tomorrow this is assumed to be code that they will begin raising the federal funds rate in exactly six months.  If you recall, the federal funds rate has been near zero for the last six years.

Tomorrow we’ll discover if the era of zero interest rate policy is over.  We watch intently for the market’s reaction and secondary convulsions.  Naturally, here at the Economic Prism we are eager for the ZIRP era to be over…it never should’ve started to begin with.

In fact, we find the Federal Reserve, and their cheap money policies, to cause more economic harm than good.  For one thing, they’ve led us to the place where markets are entirely dependent on ZIRP.  To take it away now will be like taking away food stamps from a dependent family. Continue reading →

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Watch Out Below

Posted on December 12, 2014 by MN Gordon

Six months ago a canary was sent down into the global economic coal mine.  At the time, oil was priced at over $110 a barrel.  Last month they pulled the canary retrieval line back up…the canary was dead.  The economy may be next.

Yesterday, oil’s price sat around $59 a barrel.  That’s down over 45 percent in the last six months.  No doubt, this qualifies as a market crash.  Moreover, since it’s a crash in the global economy’s most essential commodity, it surely signals something wicked this way comes.

The rapid fall in oil price is wreaking havoc upon the paper financing structure that was stimulating new exploration and production.  A similar event, triggered by an unexpected drop in house prices, occurred several years ago.  Bank balance sheets were shredded.

If you recall, when Lehman Brothers vanished from the face of the earth a little over five years ago, black swans relentlessly descended upon the LIBOR like common ravens upon fresh Southern California road kill.  Spread movements that were statistically not possible in a million years, somehow, happened every day. Continue reading →

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Something to Cheer About

Posted on December 9, 2014 by MN Gordon

This year’s on target to be a banner year for jobs growth.  With a month still left, total payrolls have already increased by 2.65 million.  An upsurge like this hasn’t been notched since the twilight of the last millennium.

The Bureau of Labor Statistics published the November employment numbers last Friday.  When they counted up the beans, they concluded 321,000 new jobs were added in November.  Although the unemployment rate held at 5.8 percent, economists and financial pundits celebrated the news with gusto…

“In one line: spectacular and, more to the point, believable,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.  “We’ve had strong hiring indicators in a number of surveys, and lower jobless claims, so sooner or later, we were going to get a blockbuster number.”

Shepherdson, no doubt, is blind.  He’s so eager to applaud a “blockbuster” number he forgets to do one very important thing.  Namely, he forgets to open his eyes and look around. Continue reading →

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